Basic Features of a Fixed-Income Security

Updated for the 2026-2027 CFA® Level I curriculum.

A fixed-income security is a debt contract between an issuer that needs funding and an investor that supplies it. Before you value a bond or assess its risk, you need to read the contract correctly. The issuer, par value, maturity, coupon terms, payment currency, and payment frequency determine what the investor is entitled to receive.

Key Takeaways

• The issuer borrows funds, while the investor receives a contractual claim on interest and principal.

• Par value is the principal amount used to calculate coupon payments and the amount commonly repaid at maturity.

• The coupon rate is a percentage of par value. The coupon payment is the resulting currency amount.

• The maturity date is the contractual repayment date. The remaining term measures the time from today to that date.

• Coupon frequency determines when interest is paid and how the annual coupon is divided.

• Fixed income does not always mean every future cash flow is fixed.

What You Need to Know for CFA Level I

• Identify the issuer and explain the investor's contractual claim.

• Distinguish par value, market price, coupon rate, and coupon payment.

• Determine the maturity date and remaining term.

• Calculate a periodic coupon payment when par value, annual coupon rate, and payment frequency are given.

• Recognize the effect of currency and payment timing on the investor's cash flows.

Detailed indenture terms and covenants are covered in the next study note on Bond Indentures and Covenants.

What Are the Basic Features of a Fixed-Income Security?

A fixed-income security formalizes a lending relationship. The issuer receives cash when the security is issued and promises specified payments to the investor. Those payments may include periodic interest, repayment of principal, or both. The investor owns a contractual claim against the issuer rather than an ownership interest in the issuer's business.

The contract determines the amount and timing of each payment. It also identifies conditions that can change those payments. A candidate should therefore begin with the stated terms instead of assuming that every bond pays a fixed coupon or returns principal in one payment.

Core Terms in a Bond Description

Issuer

The issuer is the entity that borrows. Corporations, national governments, local governments, government-related organizations, and supranational institutions can issue fixed-income securities. The issuer's identity matters because it affects the source of repayment and the risks attached to the obligation.

Par Value and Principal

Par value, also called face value, is the stated principal amount of the security. Coupon payments are usually calculated from par value, not from the bond's current market price. Unless the contract specifies amortization or another repayment pattern, the issuer repays par value at maturity.

Maturity Date and Remaining Term

The maturity date is the date on which the final contractual principal payment is due. Remaining term is the time between the valuation date and maturity. A five-year bond issued two years ago has three years remaining, even though its original maturity was five years.

Coupon Rate and Coupon Payment

The coupon rate is the annual interest rate applied to par value. The coupon payment is the currency amount paid during a coupon period. A 6% coupon rate on a $1,000 par bond produces $60 of annual coupon interest. If coupons are paid semiannually, each payment is $30.

where:

• Par value = the principal amount used for the coupon calculation,

• annual coupon rate = the stated annual interest rate, and

• payments per year = the coupon frequency.

Currency and Coupon Frequency

The payment currency tells the investor which currency will be received. It may create currency exposure when the investor measures wealth in another currency. Coupon frequency identifies how often interest is paid, such as annually, semiannually, or quarterly. Frequency changes payment timing and the amount of each periodic coupon.

How Features Shape Cash Flows and Risk

Each feature answers a different question. Par value helps determine the size of principal and coupon cash flows. Maturity identifies when the final payment is due. Coupon structure determines whether interest is fixed, floating, deferred, or absent. Currency identifies the denomination of the payments. Payment frequency controls how the annual coupon is distributed through time.

These terms also point to risks that are studied in later notes. A longer remaining term can increase sensitivity to interest-rate changes. A foreign payment currency can expose the investor to exchange rate changes. A floating coupon changes as its reference rate resets. At this stage, the key skill is identifying the source of each exposure from the contract.

How to Read a Sample Bond Term Sheet

• Issuer: North River Utilities

• Par value: $1,000

• Original term: five years

• Annual coupon rate: 4.8%

• Coupon frequency: semiannual

• Payment currency: US dollars

• Principal repayment: $1,000 at maturity

North River Utilities is the borrower. The investor has a contractual claim on coupon payments and the $1,000 principal payment. The bond pays two coupons per year, so the $48 annual coupon is divided into two $24 payments. All payments are denominated in US dollars.

Working Example

An investor buys one North River Utilities bond at a market price of $980. The bond has $1,000 par value, a 4.8% annual coupon, semiannual payments, and three years remaining.

Step 1: Identify the principal amount

The contractual principal is $1,000. The $980 market price does not replace par value in the coupon calculation.

Step 2: Calculate the annual coupon

The annual coupon is $1,000 × 4.8% = $48.

Step 3: Divide by the payment frequency

Two payments per year produce a semiannual coupon of $48 ÷ 2 = $24.

Step 4: Interpret the term

The investor expects six remaining coupon payments over three years, followed by the final principal repayment, assuming the issuer meets its obligations.

For CFA Level I, this example shows why par value, market price, coupon rate, frequency, and remaining term must be kept separate.

Common Exam Traps

Treating coupon rate and YTM as the same measure

The coupon rate sets contractual interest relative to par; YTM reflects price and promised cash flows under the stated assumptions. A discount bond can have a YTM above its coupon rate.

Using market price to calculate the contractual coupon

For a plain fixed-rate bond, annual coupon equals coupon rate times par value, even if the bond trades above or below par.

Confusing original term with remaining term

Original term runs from issue to maturity; remaining term runs from the valuation date to maturity. Read the date used in the question.

Assuming fixed income means all future payments are fixed

Floating-rate coupons reset with a benchmark, and a call or other contingency can change expected cash flows.

Ignoring currency or frequency

A 5% annual coupon on USD 1,000 par pays USD 50 per year; semiannual payments divide that amount into two USD 25 coupons under a standard convention.

Practice Question

A bond description states that the principal is repaid on 15 June 2031. Which feature does that date identify?

1. Coupon rate

2. Maturity date

3. Day-count convention

FAQs About the Basic Features of a Fixed-Income Security