Par value is a term used for investments that means original value. It’s also called face value or nominal value.
Most commonly, it refers to the original value of a bond when it was first issued. Bonds normally have a par value of either $1000 or $100.
After bonds are sold at par value, they may be re-sold and re-bought repeatedly by investors. During this process, their market price may go up or down, depending on how investors value them in relation to other bonds in the market.
For example, a bond originally sells for $1000, then trades up to $1100. Now its market price is $1100. But its par value remains $1000.
Par value is important because it determines the bond’s maturity value and the amount of its interest payment.
For example, let’s say a 30-year bond is issued with a par value of $1000 and an original interest rate—also called a coupon rate—of 5%. This means it pays 5% of $1000, or $50, every year to the owner for 30 years.
A year later, interest rates in the market have risen, and new bonds are being issued at $1000 with an interest rate of 6%. These pay $60 a year in interest.
The 5% bonds issued earlier will be less desirable, and their market price will fall. But their par value will remain $1000. And when they reach maturity, the owners will still receive par value—$1000.
In This Series
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