What is a bond: coupon, face value, maturity and how it differs from a share
A bond is a debt security: what face value, coupon, maturity, discount and premium mean, and why the price moves opposite to interest rates. A calculation using a «Chorvoq Energiya» JSC bond, a comparison table with shares and the tax on bond interest (Tax Code, Articles 41, 304, 344, 378, 381, 483).
Someone who buys a share becomes a co-owner of the company. Someone who buys a bond lends money to the company: the company promises to repay the debt on a set date and, as a rule, to pay interest until then. All the features of a bond follow from this one difference. Below we explain the main terms using one hypothetical bond.
Four basic terms
- Issuer — the organisation that issued the bond and must repay the debt.
- Face value — the amount returned to the holder at the end of the term; interest is usually calculated on it too.
- Coupon — the interest the issuer pays regularly during the term; expressed as an annual percentage, it is called the coupon rate.
- Maturity — the date on which the face value is repaid.
The Tax Code also defines bond income precisely: under Article 41, part five, any income declared (set) in advance, including income received in the form of a discount on debt obligations of any kind, is treated as interest. So both the coupon and the gain from buying a bond below face value and then receiving the face value are interest.
Example: a «Chorvoq Energiya» JSC bond
Hypothetical terms: face value 1,000,000 soums, term 3 years, coupon rate 16% a year, coupon paid twice a year. Investor Shahnoza bought the bond on the exchange for 982,000 soums.
| Indicator | Calculation | Result |
|---|---|---|
| One coupon | 1,000,000 × 16% / 2 | 80,000 soums |
| Coupons over 3 years | 6 × 80,000 | 480,000 soums |
| Total received by the end of the term | 480,000 + 1,000,000 | 1,480,000 soums |
| Income above the purchase price | 1,480,000 − 982,000 | 498,000 soums |
| Current yield (annual coupon / price) | 160,000 / 982,000 | 16.29% |
| Simple average annual yield (no reinvestment) | 498,000 / 982,000 / 3 | 16.9% |
Because Shahnoza bought 18,000 soums below face value (a discount), she earns extra income on top of the coupon. If a bond sells above face value, the difference is called a premium, and the yield is lower than the coupon rate.
The "simple average" figure in the table is simplified for explanation: in practice yield is calculated with more complex methods that take into account the time value of money.
Why does the price change?
The coupon rate is set at issue and usually does not change. Market interest rates, however, do. If new bonds start coming to market with a higher rate, no one will buy the old 16% bond at face value: its price falls. If market rates fall, the old bond, on the contrary, becomes more expensive. So a bond is not risk-free either: if you hold it to maturity you get the face value (if the issuer can pay), but if you sell earlier the price may be below what you paid.
The second risk is that the issuer cannot pay. That is why issuers in a weaker financial position usually have to offer a higher rate.
Share vs bond: comparison table
| Criterion | Share | Bond |
|---|---|---|
| Who the holder is | Part-owner of the company | Person who lent money to the company |
| Income | Dividend: if there is profit and it is distributed | Coupon (interest): under the terms of issue |
| Term | Usually no maturity | Has a set redemption date |
| Getting the money back | Only by selling the share to someone else | Face value repaid at the end of the term |
| Vote in management | An ordinary share usually has one | None |
| Price fluctuations | Usually larger | Usually smaller, depend on interest rates |
| Account in the issuer's books (NAS No. 21) | 8310, 8320 (equity) | 6830 or 7830 (liability) |
| Type of income under the Tax Code | Dividend (Article 41, part 1) | Interest (Article 41, part 5) |
NAS No. 21 separates an issuer's bonds by term: those payable within 12 months on account 6830 "Bonds payable" (paragraph 294), those payable after more than 12 months on account 7830 "Long-term bonds payable" (paragraph 334). For the investor, paragraph 12 of NAS No. 12 requires the discount or premium to be written off from purchase until redemption. Journal entries are in a separate article.
Tax on bond interest
The Tax Code has several rules depending on the type of bond and the recipient:
| Situation | Rule | Article |
|---|---|---|
| Resident legal entity receives interest (general rule) | Included in the recipient's tax base and taxed in the general manner | Article 344, part 1 |
| Resident individual receives interest (general rule) | 5% | Article 381, part 2 |
| Non-resident receives interest (general rule) | 10% | legal entity: Article 353, item 1; individual: Article 382, item 1 |
| Interest on bonds of business companies, from 1 April 2022 to 31 December 2028 | Exempt from personal income tax and corporate profit tax for resident and non-resident individuals and legal entities | Article 483, part 27 |
| Income on government bonds and other government securities of Uzbekistan, on international bonds issued by Uzbekistan and its legal entities (legal entity) | Not counted as income for tax purposes | Article 304, item 19 |
| Interest on government securities of Uzbekistan (individual) | Not taxed | Article 378, item 12 |
| A non-resident's income on government bonds and other securities of Uzbekistan, on international bonds of Uzbek legal entities | Not taxed | Article 351, item 2 |
So, because «Chorvoq Energiya» JSC is a business company, the coupons Shahnoza receives until 31 December 2028 are exempt from personal income tax under Article 483, part 27. Which rule will apply to coupons after 2029 depends on the legislation at that time.
Important note: this article is written for explanation and is not a recommendation to buy any bonds. Check tax rules against the current version on lex.uz.
Test yourself
5 questions on this topic: pick an option or reveal the answer.
"Kattaqo'rg'on un" LLC carried government bonds bought as a short-term investment in account 5810 at their nominal value. At maturity the bonds were redeemed at nominal value and the money arrived in the settlement account. What journal entry is made?
"Yangiyo'l savdo" LLC bought 40 bonds with a par value of 100 000 soum each for a total of 3 880 000 soum, with 6 months left until redemption (hypothetical amounts). Under its accounting policy, the difference between par value and purchase cost is spread evenly over the months. Under paragraph 241 of NAS No. 21, how is one month's share recorded?
A bond with a face value of 1 000 000 soum pays an annual coupon of 12% of the face value. The bond is selling on the market for 960 000 soum. What is the current yield (annual coupon / market price)?
An investor spread spare money not over one company's shares but over the shares and bonds of several companies in different industries (diversification). What is the main purpose of this approach?
The par value of a "Marg'ilon atlas" JSC share is 10 000 soum, and its current exchange price is 16 000 soum. The company paid an annual dividend of 1 200 soum per share (hypothetical example). What is the dividend yield (annual dividend per share / current market price of the share)?
Answered: 0 / 50 of 5 correct
All tests →See also
Sources
- Tax Code of the Republic of Uzbekistan (version as of August 2026): Article 41, part five; Article 49 · concept of interest (including discount); securities
- Tax Code: Article 304, item 19; Article 344; Article 351 (item 2); Article 353 (item 1); Article 378, item 12; Article 381, part two; Article 382 (item 1); Article 483, part twenty-seven · taxation of bond interest
- NAS No. 21 "Chart of Accounts for the Financial and Economic Activities of Business Entities and Instructions for Its Application" (Order No. 191 of the Minister of Economy and Finance of 14 November 2024, registered by the Ministry of Justice on 27 December 2024 under No. 3593; in force from 1 January 2025): paragraphs 294 and 334 · bonds payable 6830 (up to 12 months) and 7830 (over 12 months)
- NAS No. 12 "Accounting for Financial Investments" (approved by Order No. 138 of the Minister of Economy and Finance of 14 June 2024, registered by the Ministry of Justice on 18 July 2024 under No. 3531): paragraph 12 · writing off the discount or premium on debt securities until redemption
- Britannica Money: Bond market basics · concepts of face value, coupon and maturity checked
- «Chorvoq Energiya» JSC bond example, figures · prepared by the author, hypothetical