Above Par

AAA

DEFINITION of 'Above Par'

A term used to describe the price of a security when it is trading above its face value. A security usually trades at above par when its income distributions are higher than those of other instruments currently available in the market.

If an investor purchases a security above face value, he or she will incur a capital loss at maturity when it is redeemed for face value.

INVESTOPEDIA EXPLAINS 'Above Par'

For example, a 5-year bond with $1,000 face value that pays a coupon of 10% annually may trade closer to $1,168 if similar bond rates decline to 6%. This is because investors are willing to pay more for a higher coupon; thus, it is said to be trading above par.

In order to make its yield equal current market rates, the bond should trade at its present value.

In the above example, the following calculation was used to determine the theoretical price the bond would trade at

N = 5 years
I/Y = 6 (market rate, 6%)
FV = $1,000 (face value)
PMT = $100 (10% coupon)
Payments/Year = 1 (annual coupon payment)

RELATED TERMS
  1. Coupon

    The interest rate stated on a bond when it's issued. The coupon ...
  2. Par Value

    The face value of a bond. Par value for a share refers to the ...
  3. Maturity

    The period of time for which a financial instrument remains outstanding. ...
  4. Par

    1. The face value of a bond. Generally $1,000 for corporate issues, ...
  5. Present Value - PV

    The current worth of a future sum of money or stream of cash ...
  6. Future Value - FV

    The value of an asset or cash at a specified date in the future ...
RELATED FAQS
  1. What valuable information can a company's Additional Paid in Capital provide to potential ...

    Additional paid in capital (APIC) represents the amount of money paid by shareholders above the par value of each share. ... Read Full Answer >>
  2. What is the difference between a zero-coupon bond and a regular bond?

    The difference between a zero-coupon bond and a regular bond is that a zero-coupon bond does not pay coupons, or interest ... Read Full Answer >>
  3. What does it mean when a bond is selling at a premium? Is it a good investment?

    When the terms premium and discount are used in reference to bonds, they are telling investors that the purchase price of ... Read Full Answer >>
  4. How is a corporate bond taxed?

    A corporate bond is taxed through the interest earned on the bond, through capital gains or losses earned in the early sale ... Read Full Answer >>
  5. What is the difference between the cost of capital and the discount rate?

    The cost of capital refers to the actual cost of financing business activity through either debt or equity capital. The discount ... Read Full Answer >>
  6. How do I use the principles of convexity to compare bonds?

    Convexity, along with another principle known as duration, is an important consideration when assessing bond risk. All else ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    How Bond Market Pricing Works

    Learn the basic rules that govern how bond prices are determined.
  2. Bonds & Fixed Income

    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.
  3. Bonds & Fixed Income

    Advanced Bond Concepts

    Learn the complex concepts and calculations for trading bonds including bond pricing, yield, term structure of interest rates and duration.
  4. Bonds & Fixed Income

    Muni Bonds, Taxable Bonds or CDs: Which is Best?

    Here's how to tell if municipal bonds are a better investment than taxable bonds or CDs.
  5. Fundamental Analysis

    Calculating Future Value

    Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today.
  6. Economics

    What is Deadweight Loss?

    Mainly used in economics, deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources.
  7. Economics

    How to Do a Cost-Benefit Analysis

    The benefits of a given situation or business-related action are summed and then the costs associated with taking that action are subtracted.
  8. Professionals

    Why You Should Avoid Fixating on Bond Duration

    Financial advisors and their clients should then focus on a bond fund’s portfolio rather than relying on any single metric like duration.
  9. Investing

    The Case For Stocks Today

    Last week, U.S. equities advanced with the S&P 500 Index notching new records. Investors are now getting nervous with rate and currency volatility spiking.
  10. Mutual Funds & ETFs

    Why You May Want To Be (And Stay) In Bonds

    Bonds are complicated, and it’s easy to feel intimidated or confused. Fortunately, you don’t need to be a numbers geek to be an informed investor.

You May Also Like

Hot Definitions
  1. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  2. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  3. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  4. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  5. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  6. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
Trading Center