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 meanings 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 percent 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.)

RELATED FAQS
  1. What is the difference between par and no par value stock?

    Understand the difference between par and no par value stock and how this differentiation affects corporate liabilities and ... Read Answer >>
  2. 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 >>
  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. How do companies report the value of their capital stock?

    Find out how companies report the value of their capital stock in their financial statements, including why some companies ... Read Answer >>
  5. If the price of the bond falls, does that mean the company won't pay me the par value?

    When you buy a bond, you are loaning money to the issuer. Because a bond is a loan, the interest paid to the bondholder is ... Read Answer >>
Related Articles
  1. Investing

    Paid-Up Capital

    Paid-Up Capital is listed in the equity section of the balance sheet. It represents the amount of money shareholders have paid into the company by purchasing shares. It’s essentially two accounts, ...
  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

    What is a Share Premium Account?

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

    Understanding Bond Quotes

    A bond quote is a bond’s trading price.
  5. 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.
  6. Investing

    Retail Notes: A Simpler Alternative To Bond Funds

    These securities are meant to be held until maturity, removing the burden of complex pricing that sometimes plagues bonds.
  7. Investing

    Risks To Consider Before Investing In Bonds

    Make sure you understand the risks associated with bonds before making an investment decision.
  8. Managing Wealth

    How Bond Prices and Yields Work

    Understanding bond prices and yields can help any investor in any market.
  9. Investing

    Calculating Bond Equivalent Yield

    The bond equivalent yield calculates the semi-annual, quarterly or monthly yield on a discount bond or note.
  10. 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.
RELATED TERMS
  1. Half Stock

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

    A term that refers to a bond, preferred stock or other debt obligation ...
  3. At A Discount

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

    The nominal value or dollar value of a security stated by the ...
  5. Par Yield Curve

    A graph of the yields on hypothetical Treasury securities with ...
  6. Pull To Par

    The movement of a bond's price toward its face value as it approaches ...
Hot Definitions
  1. Interest Expense

    The cost incurred by an entity for borrowed funds. Interest expense is a non-operating expense shown on the income statement. ...
  2. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  3. Pro-Rata

    Used to describe a proportionate allocation. A method of assigning an amount to a fraction, according to its share of the ...
  4. Private Placement

    The sale of securities to a relatively small number of select investors as a way of raising capital.
  5. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  6. Backward Integration

    A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it ...
Trading Center