Definition:
A bond issued at par is a bond that is purchased at its face value. This occurs when the market interest rate is equal to the coupon rate on the bond. For example, if a bond with a face value of $1,000 is purchased for $1,000, it is said to be issued at par.
Key points about bonds issued at par:
- Market interest rates: Bonds are typically issued at par when the market interest rate is equal to the coupon rate.
- No premium or discount: There is no premium or discount associated with bonds issued at par.
- Interest income: The interest income from a bond issued at par consists solely of the coupon payments.
- Tax implications: The coupon payments from a bond issued at par are generally taxable as ordinary income.
Why are bonds issued at par attractive to investors?
- Predictable returns: Bonds issued at par offer a predictable stream of income, as the coupon payments are fixed.
- Stable value: If the bond is held to maturity, the investor will receive the face value of the bond, which is typically the same as the purchase price.
However, it’s important to note that the market price of a bond can fluctuate over time, even if it was originally issued at par.
In essence, a bond issued at par is a bond that is purchased at its face value, and it offers investors a predictable stream of income.
