Bonds & Interest Rates · Beginner · 4 min

Coupon, maturity, face value

You can read the three key terms of a bond and calculate its interest payments and what a buyer at a different price receives.

Three numbers

A share has no end date and no promised payments. A bond is the opposite: everything is written down at issue. Three numbers tell you almost all of it.

Once you can read them, you can work out every payment a bond will make, and why its price on the market may differ from the amount printed on it. This lesson explains the three terms and how they fit together.

Face, coupon, maturity

The face value, also called par or principal, is the amount the issuer repays at the end. For many bonds it is 1,000 per bond, for others 100 or another unit.
The coupon is the yearly interest, as a percentage of the face value. A 4% coupon on a face value of 1,000 means 40 a year. Many bonds pay it once a year, others in two halves.
The maturity is the date on which the face value is repaid and the bond ends. Short-term bonds mature within a few years, long-term ones after ten, twenty or thirty years.

Together, these fix every payment. A five-year bond with a face value of 1,000 and a 4% coupon pays 40 a year for five years and 1,000 at the end, as long as the issuer can pay.

After issue, bonds trade at market prices. These are often quoted as a percentage of face value: a price of 95 means 95% of face value, so 950 for a 1,000 bond. The issuer always repays the face value at maturity, whatever a buyer paid. Someone who buys below face value earns the coupons plus the gap at the end. Someone who buys above face value loses the gap.

Some bonds pay no coupon at all. A zero-coupon bond is sold below its face value and repaid at face value. FINRA notes that its return comes entirely from that difference.

Bought 950, repaid 1,000

A fictional government bond has a face value of 1,000, a 3% coupon paid twice a year, and four years left to maturity. It trades at 95, so 950.

Coupon payments: 30 a year, as two payments of 15.
Over four years: 120 in coupons.
At maturity: 1,000 back.

The buyer pays 950 and receives 1,120 in total. The gain is 170: 120 in coupons plus 50 from the price gap. That is more than the 3% coupon alone suggests, which is why the next chapter looks at yield.

Common mistakes

Calculating interest on the price paid. The coupon is always based on the face value.
Expecting the purchase price back. You receive the face value, which can be more or less.
Ignoring how often the coupon is paid. It changes the timing of income.
Confusing price quotes. A quote of 95 usually means 95% of face value.

The takeaway

Face value is what is repaid, the coupon is the interest on it, and maturity is the end date. Together they fix every payment of a bond.

Check yourself

Quick quiz

4 questions. Instant feedback, nothing is saved.

1Tap the term that decides the yearly interest payment.

Tap the chart.

The coupon is a percentage of the face value: 4% of 1,000 is 40 a year.
2A bond with a face value of 1,000 and a 3% coupon pays interest twice a year. How much is each payment?

3% of 1,000 is 30 a year, paid in two halves of 15.
3You buy that bond for 950. How much is repaid at maturity?

The issuer repays the face value, whatever the buyer paid. Buying below face value adds a gain at maturity.
4What is a zero-coupon bond?

The return comes from the gap between the purchase price and the face value.

of 4 correct.