Loading the player...

What is 'Face Value'

Face value is the nominal value or dollar value of a security stated by the issuer. For stocks, it is the original cost of the stock shown on the certificate. For bonds, it is the amount paid to the holder at maturity, generally $1,000. It is also known as "par value" or simply "par."

BREAKING DOWN 'Face Value'

In bond investing, face value, or par value, is the amount paid to a bondholder at the maturity date, given the issuer does not default. However, bonds sold on the secondary market fluctuate with interest rates. For example, if interest rates are higher than the bond's coupon rate, then the bond is sold at a discount, or below par. Conversely, if interest rates are lower than the bond's coupon rate, then the bond is sold at a premium, or above par. While face value of a bond provides for a guaranteed return, the face value of a stock is often a poor indicator of actual worth.

Face Value and Bonds

The face value, or par, of a bond is the amount the issuer provides to the bond holder once maturity is reached. A bond may have an additional interest rate or the profit may be based solely on the increase from a below-par original issue price and the face value at maturity.

Face Value and Stock Shares

The cumulative face value of all of a company’s stock shares designates the legal capital that must be maintained in the business. Only funds above and beyond that point can be released out to investors as dividends, making the funds covering the face value function as a form of reserve. However, there is no requirement that dictates what must be listed as face value upon issue, allowing businesses to use very low values to determine the size of the reserve. For example, the par value of AT&T shares is listed as $1 per common share, while Apple shares have a par value of $0.00001.

Face Value and Market Value

The face value of a stock or bond does not denote the actual market value. Market value is determined based on principles of supply and demand, often governed by what investors are willing to buy and sell a particular security for at a specific point in time. Depending on market conditions, the face value and market value may have very little correlation.

In the bond market, interest rates, compared to the bond’s coupon rate, may determine if a bond sells above or below par. Zero-coupon bonds, or those where investors receive no interest aside from that associated with purchasing the bond below face value, are generally only sold below par as that is the only way an investor can receive a profit.

RELATED TERMS
  1. Par Value

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

    Short for "par value," par can refer to bonds, preferred stock, ...
  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. Bond Discount

    The amount by which the market price of a bond is lower than ...
  6. Pull To Par

    The movement of a bond's price toward its face value as it approaches ...
Related Articles
  1. Investing

    Understanding Face Value

    Face value is the dollar value stated on a security.
  2. 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.
  3. 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.
  4. Investing

    Why Would A Stock Have No Par Value?

    A stock with no par value might trade for thousands of dollars. It just depends on what the market deems it’s worth.
  5. Investing

    Explaining Original Issue Discount

    An original issue discount is the amount below par at which a bond or other debt instrument is issued.
  6. Investing

    How To Evaluate Bond Performance

    Learn about how investors should evaluate bond performance. See how the maturity of a bond can impact its exposure to interest rate risk.
  7. Financial Advisor

    Using Excel PV Function to compute Bonds PV

    To determine the value of a bond today - for a fixed principal (par value) to be repaid in the future at any predetermined time - we can use an Excel spreadsheet.
  8. Financial Advisor

    Simple Math for Fixed-Coupon Corporate Bonds

    A guide to help to understand the simple math behind fixed-coupon corporate bonds.
  9. Investing

    Understanding Bond Quotes

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

    Risks To Consider Before Investing In Bonds

    Make sure you understand the risks associated with bonds before making an investment decision.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. Will the price of a premium bond be higher or lower than its par value?

    Find out why the selling price of a premium bond is always higher than its par value, including how changing interest rates ... Read Answer >>
  5. 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 >>
  6. How does face value differ from the price of a bond?

    Discover how bonds are traded as investment securities and understand the various terms used in bond trading, including par ... Read Answer >>
Hot Definitions
  1. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  2. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  3. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  4. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  5. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  6. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
Trading Center