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)
The face value of a bond. Par value for a share refers to the ...
The interest rate set by the Federal Reserve that is offered ...
The income return on an investment. This refers to the interest ...
The interest rate stated on a bond when it's issued. The coupon ...
The value of an asset or cash at a specified date in the future ...
The period of time for which a financial instrument remains outstanding. ...