Principal

The word principal has two meanings relevant to investment:

  1. the amount of a loan excluding accrued interest payments
  2. a person for whom an agent acts.

The principal of a bond or other debt security is the amount shown as its face value, the nominal value of the bond which is repaid in full on its maturity date.

In the case of a loan, the principal is the amount originally borrowed.

The principal of a bond may be quite different from the amount actually raised by its issue, as the amount the borrower raises will depend on the market value of a bond of that face value, interest rate, terms, and maturity at the time of issue.

The amount raised by issuing a zero coupon bond is likely to be lot less than its face value. The amount raised by issuing a bond with a floating interest rate is likely to be very similar to its face value.

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