Question

An investor wishes to buy a new issue of U.S. Government agency bonds. You recommend that the customer purchase Federal Farm Credit System bonds with a 10 year maturity. An investor who purchases the new issue can expect to pay:
A. par value
B. par value less a discount
C. par value plus a mark-up
D. par value plus a commission

Answer 1

Answer:

Explanation: Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. Par value for a bond is typically $1,000 or $100. The market price of a bond may be above or below par, depending on factors such as the level of interest rates and the bond’s credit status. Par value for a share refers to the stock value stated in the corporate charter. Shares usually have no par value or very low par value, such as one cent per share. In the case of equity, par value has very little relation to the shares' market price.The par value mandate creates a subsequent legal liability that the shareholders of this stock contribute, at a minimum, this face value of the stock in order to fund the company. If the shareholders don't do so and the corporation requires the funds, these shareholders would be liable for the difference between the actual issue price and the face value, if the issue price is less than the face value, essentially “under par”.