Par Value

Par value, also known as face value or nominal value, is the minimum price at which shares or other securities are issued and can be redeemed. The par value is typically set by the company at the time of issuance and does not fluctuate.
On this page

Definition

Par Value, also referred to as face value or nominal value, is the value at which a bond or stock is issued by the issuing company. For bonds, it is the amount that will be paid back to the bondholder at maturity. For stocks, it represents the minimum price at which new shares can be issued. Typically, the par value of stocks is quite low and often does not reflect the actual market value.

Examples

  1. Stocks:

    • A company issues 1,000 shares of its common stock with a par value of $1 per share. This means that the company cannot sell these shares for less than $1 each.

  2. Bonds:

    • A corporation issues a bond with a par value (or face value) of $1000. This amount will be returned to the bondholder at the time of maturity, regardless of the bond’s market price at any given time.

Frequently Asked Questions

Q1: What happens if a stock’s market value is higher than its par value?

  • Answer: If a stock’s market value exceeds its par value, the stock is said to be “above par.”

Q2: Can the market value of a bond be different from its par value?

  • Answer: Yes, a bond’s market value can fluctuate based on interest rate changes, credit rating of the issuer, and other factors. However, the par value is the amount that will be repaid at maturity.

Q3: Why do companies issue stock with a par value?

  • Answer: Companies issue stock with a par value to set a minimum price per share for accounting and legal purposes.

Q4: What does “below par” mean in terms of bonds and stocks?

  • Answer: If the market value of a bond or stock falls below its par value, it is said to be “below par.”

Q5: Can par value change after the stock or bond is issued?

  • Answer: No, the par value is fixed at issuance and does not change.

Market Value: Market value is the price at which a given security is currently trading on the open market.

Above Par: When a security is trading at a price higher than its par value.

Below Par: When a security is trading at a price lower than its par value.

Gilt-edged Security: A high-grade bond issued by certain national governments that typically pays back at par value.

Online References

  1. Investopedia: Par Value
  2. The Motley Fool: Understanding Par Value for Bonds
  3. Corporate Finance Institute: Par Value of Stock

Suggested Books for Further Studies

  1. Accounting for Non-Accountants by Wayne Label
  2. Finance for Non-Financial Managers by Gene Siciliano
  3. Financial Accounting by Walter T. Harrison Jr. and Charles T. Horngren

Accounting Basics: “Par Value” Fundamentals Quiz

Loading quiz…

Thank you for exploring our detailed explanation and challenging yourself with our quiz on par value. Continue learning and striving for investment excellence!

Paradigm Shift
Par Bond