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Principal Return Calculation:
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The principal returned, also known as the face value or par value, is the amount the bond issuer agrees to repay the bondholder at maturity. This is the original investment amount that is returned when the bond reaches its maturity date.
The calculator uses a simple formula:
Where:
Explanation: At maturity, bondholders receive the full face value of the bond regardless of any interest payments received during the bond's term.
Details: Understanding the principal return is crucial for bond investors as it represents the guaranteed repayment amount at maturity, providing capital preservation and helping investors plan for future cash flows.
Tips: Enter the face value of the bond in dollars. The face value must be a positive number greater than zero.
Q1: Is the principal returned always equal to the face value?
A: Yes, for standard bonds, the principal returned at maturity is always equal to the face value, regardless of market price fluctuations.
Q2: What happens if a bond is called before maturity?
A: If a bond is called, the issuer may return the principal early, often at a slight premium to the face value as specified in the bond's call provisions.
Q3: Does inflation affect the principal returned?
A: For nominal bonds, inflation reduces the purchasing power of the returned principal. Inflation-protected securities adjust the principal for inflation.
Q4: Are there bonds that don't return the full principal?
A: Yes, defaulted bonds or those with credit events may not return the full principal. Zero-coupon bonds are purchased at a discount but return full face value.
Q5: How is principal return different from interest payments?
A: Interest payments are periodic income during the bond's life, while principal return is the one-time repayment of the original investment at maturity.