# Par Value

## What is 'Par Value'

Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. Par value for a bond is typically \$1,000 or \$100. The market price of a bond may be above or below par, depending on factors such as the level of interest rates and the bond’s credit status.

Par value for a share refers to the stock value stated in the corporate charter. Shares usually have no par value or very low par value, such as 1 cent per share. In the case of equity, par value has very little relation to the shares' market price.

Par value is also known as nominal value or face value.

## Par Value of Bonds

One of the most important characteristics of a bond, is its par value. The par value is the amount of money that bond issuers promise to repay bondholders at the maturity date of the bond. A bond is essentially a written promise that the amount loaned to the issuer will be repaid.

The coupon rate of a bond as compared to the interest rates in the economy determines whether a bond will trade at par, below par, or above its par value. The coupon rate is the interest payments that are made to bondholders, annually or semi-annually, as compensation for loaning the issuer a given amount of money. For example, a bond with par value of \$1,000 and a coupon rate of 4% will have annual coupon payments of 4% x \$1,000 = \$40. A bond with par value of \$100 and a coupon rate of 4% will have annual coupon payments of 4% x \$100 = \$4. If a 4% coupon bond is issued when interest rates are 4%, the bond will trade at its par value since both interest and coupon rates are the same.

However, if interest rates rise to 5%, the value of the bond will drop, causing it to trade below its par value. This is because the bond is paying a lower interest rate to its bondholders compared to the higher interest rate of 5% that similar-rated bonds will be paying out. The price of a lower-coupon bond therefore must decline to offer the same 5% yield to investors. On the other hand, if interest rates in the economy falls to 3%, the value of the bond will rise and trade above par since the 4% coupon rate is more attractive than 3%.

Regardless of whether a bond is issued at a discount or premium, the issuer will repay the par value of the bond to the investor at the maturity date. Say, an investor purchases a bond for \$950 and another purchases the same bond for \$1,020. On the bond's maturity date, both of the investors will be repaid \$1,000 par value of the bond.

While the par value of a corporate bond is usually stated as either \$100 or \$1,000, municipal bonds have par values of \$5,000 and federal bonds often have \$10,000 par values.

## Par Value of Stocks

Some states require that companies cannot sell shares below the par value of these shares. To comply with state regulations, most companies set a par value for their stocks to a minimal amount. For example, the par value for shares of Apple, Inc. is \$0.00001 and the par value for Amazon stock is \$0.01. Shares cannot be sold below this value upon initial public offering - this way, investors are confident that no one is receiving a favorable price treatment.

Some states allow the issuance of a stock with no par value. For these stocks, there is no arbitrary amount above which a company can sell. An investor can identify no par stocks on stock certificates as they will have "no par value" printed on them. The par value of a company's stock can be found in the Shareholders' Equity section of the balance sheet.