At maturity,
the original face value of the bond would be multiplied by the cumulative inflation rate registered since the date of issue to obtain the final yield at maturity.
Not exact matches
If the
bond has
face value $ 1100 five years from now and is sold by the issuer for $ 1000 today, then it is not a coupon
bond in the usual sense
of the word (and it does not have a 10 % coupon) but rather it is a zero - coupon or
original issue discount
bond.
To expand on @DilipSarwate's comment regarding your first bullet point, if the
original face value for the
bond is $ 1000, it has a maturity
of five years and a coupon rate
of 10 %, then each
of those five years you will receive $ 100 (10 %
of $ 1000) and at the end
of the five years you will receive $ 1000 back, for a total outlay
of $ 1000 and a total income
of $ 1500, netting you $ 500.
The AFR is useful for tax concepts such as
Original Issue Discount (when issuers sell low - interest or no - interest
bonds or loans at less than
face value, attempting to recharacterize interest income as return
of principal), various grantor trusts (e.g. GRATs), and so forth.
The Principal is the amount borrowed, the
original amount invested, or the
face value of a
bond [2].
Principal may also be used to refer to the
face value or
original amount
of a
bond.