What does face value refer to in the context of bonds?

Face value refers to the amount of principal that is due to the bondholder at the maturity date of the bond. This value is typically stated on the bond certificate and represents the amount that the issuer promises to pay the bondholder when the bond matures.

Understanding the face value is crucial for investors because it helps establish the bond's future cash flow—a fixed amount that will be returned at maturity, in addition to any interest payments received during the life of the bond.

In this context, the other choices do not accurately represent the definition of face value. The market value of a bond may fluctuate based on demand and supply factors but does not relate to the principal amount. The initial investment refers to the bondholder's purchase price, while the interest earned is a separate calculation based on the bond's coupon rate, not the face value itself.