Loading the player...
A:

People often get confused when they read about the "par value" for a stock. One reason for this is that the term has slightly different applications depending on whether you are talking about equity or debt.

In general, par value (also known as par, nominal value or face value) refers to the amount at which a security is issued or can be redeemed. For example, a bond with a par value of $1,000 can be redeemed at maturity for $1,000. This is also important for fixed-income securities such as bonds or preferred shares because interest payments are based on a percentage of par. So, an 8% bond with a par value of $1,000 would pay $80 of interest in a year.

It used to be that the par value of common stock was equal to the amount invested (as with fixed-income securities). However, today most stocks are issued with either a very low par value (such as $0.01 per share) or no par value at all.

You might be asking yourself why a company would issue shares with no par value. Corporations do this because it helps them avoid a liability to stockholders should the stock price take a turn for the worse. For example, if a stock was trading at $5 per share and the par value on the stock was $10, theoretically, the company would have a $5-per-share liability.

Par value has no relation to the market value of a stock. A no par value stock can still trade for tens or hundreds of dollars - it all depends on what the market feels the company is worth.

For more about par values, see Bond Basics Tutorial and Stock Basics Tutorial.

RELATED FAQS
  1. What is the difference between par value and market value?

    Learn about the difference between the par value and market value of financial securities, including the role they play in ... Read Answer >>
  2. What does tier 1 capital tell investors about a bank's operations?

    Learn about which financial instruments have par values and what this means about the market price of the most common of ... Read Answer >>
  3. Are corporations required to state the par value of their stock?

    Find out when companies are required to state the par value of stock and why it is beneficial to businesses and shareholders ... Read Answer >>
  4. What is the difference between par value and face value?

    Learn about the par value and face value of financial securities and what these synonymous terms mean about the value and ... Read Answer >>
  5. Should investors focus more on the current yield or face value of a bond?

    Find out when investors should focus on a bond's current yield versus its face value, including an example of how current ... Read Answer >>
Related Articles
  1. Investing

    What is Par Value?

    Par value is a term used for investments that means original value. It’s also called face value or nominal value.
  2. Investing

    Are Bonds Selling At A Premium A Good Investment?

    A bond with a par value – or face value -- of $1,000 is selling at a premium when its price exceeds par.
  3. Investing

    Understanding Face Value

    Face value is the dollar value stated on a security.
  4. Investing

    What is a Share Premium Account?

    The share premium account is an equity account found on a company’s balance sheet.
  5. Investing

    Understanding Bond Quotes

    A bond quote is a bond’s trading price.
  6. Investing

    What's Share Capital?

    Share capital, also called equity financing, is the total amount of money and property a company has received for selling its shares to shareholders.
  7. Investing

    What is a Nominal Value?

    The nominal value of a security, such as a stock or bond, remains fixed for the duration of its life.
  8. Investing

    Debt Buybacks Continue

    Many companies are buying bonds back at a discount, and adjusting capital structures to more acceptable levels.
  9. Investing

    Risks To Consider Before Investing In Bonds

    Make sure you understand the risks associated with bonds before making an investment decision.
RELATED TERMS
  1. Par Value

    The face value of a bond. Par value for a share refers to the ...
  2. Half Stock

    Stock sold with a par value half of what is considered standard. ...
  3. At Par

    A term that refers to a bond, preferred stock or other debt obligation ...
  4. Below Par

    A term describing a bond whose price is below the face value ...
  5. At A Discount

    This specifically refers to stock that is sold for less than ...
  6. Face Value

    The nominal value or dollar value of a security stated by the ...
Hot Definitions
  1. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  3. Portfolio Investment

    A holding of an asset in a portfolio. A portfolio investment is made with the expectation of earning a return on it. This ...
  4. Treynor Ratio

    A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless ...
  5. Buyback

    The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies ...
  6. Tax Refund

    A tax refund is a refund on taxes paid to an individual or household when the actual tax liability is less than the amount ...
Trading Center