I’m looking at a bond, and it says the maturity value is different from the face value. What exactly does that mean? Is it what I’ll get back at maturity?
Yeah, it’s usually the amount you’ll get when the bond matures, including any premiums or adjustments.
So maturity value is typically the face value, plus accrued interest or any premium or discount depending on when you bought the bond.
So I’ll always get the maturity value at the end? Even if I buy the bond at a premium?
Yes, you’ll get the maturity value, but remember, if you buy a bond at a premium, the return you get will be lower than the coupon rate.
Wait, so if I buy at a premium, I get the maturity value but my returns could still be lower than expected?
Correct, that’s because your initial investment was higher than the face value. So, even though the maturity value stays the same, your effective return will be impacted.
Okay, so the maturity value is fixed, but how much I make depends on what I pay for the bond?
Exactly. The coupon remains the same, but the yield you actually get will depend on whether you bought at a discount or premium.
Maturity value is guaranteed at maturity, but the amount you earn in between can fluctuate based on your purchase price. That’s the real return you need to track.
Honestly, I just look at maturity value as the final payout. I don’t think too much about the returns unless I’m selling before maturity.
Got it, so the maturity value is set but my return depends on how much I pay for the bond. Thanks for clearing it up!