Face Value Definition - Bonds - Investopedia

Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the ... Bonds FixedIncome WhatIsFaceValue? Facevalueisafinancialtermusedtodescribethenominalordollarvalueofasecurity,asstatedbyitsissuer.Forstocks,thefacevalueistheoriginalcostofthestock,aslistedonthecertificate.Forbonds,itistheamountpaidtotheholderatmaturity,typicallyin$1,000denominations.Thefacevalueforbondsisoftenreferredtoas"parvalue"orsimply"par." KeyTakeaways Facevaluedescribesthenominalvalueordollarvalueofasecurity;thefacevalueisstatedbytheissuingparty.Astock'sfacevalueistheinitialcostofthestock,asindicatedonthecertificateofthestockinquestion;abond'sfacevalueisthedollarfigureduetobepaidtotheinvestor,oncethebondreachesmaturity.Theactualmarketvalueofastockorabondisnotreliablyindicatedbyitsfacevalue,becausetherearemanyotherinfluencingforcesatplay,suchassupplyanddemand. 1:16 FaceValue UnderstandingFaceValue Inbondinvesting,facevalue(parvalue)istheamountpaidtoabondholderatthematuritydate,aslongasthebondissuerdoesn'tdefault.However,bondssoldonthesecondarymarketfluctuatewithinterestrates.Forexample,ifinterestratesarehigherthanthebond'scouponrate,thenthebondissoldatadiscount(belowpar). Conversely,ifinterestratesarelowerthanthebond'scouponrate,thebondissoldatapremium(abovepar).Whilethefacevalueofabondprovidesforaguaranteedreturn,thefacevalueofastockisgenerallyapoorindicatorofactualworth. Whiletheparvalueofbondsisgenerallystatic,thereisanotedexceptionwithinflation-linkedbonds,whoseparvalueisadjustedbyinflationratesforpredeterminedtimeperiods. FaceValueandBonds Abond'sfacevalueistheamounttheissuerprovidestothebondholder,oncematurityisreached.Abondmayeitherhaveanadditionalinterestrate,ortheprofitmaybebasedsolelyontheincreasefromabelow-paroriginalissuepriceandthefacevalueatmaturity. FaceValueandStockShares Thecumulativefacevalueoftheentiretyofacompany’sstocksharesdesignatesthelegalcapitalacorporationisobligatedtomaintain.Onlytheabove-and-beyondcapitalmaybereleasedtoinvestors,intheformofdividends.Inessence,thefundsthatcoverthefacevalue,functionasatypeofdefaultreserve. However,thereisnorequirementdictatingthefacevaluebusinessesmustlistuponissue.Thisaffordsbusinessestheleewaytouseverylowvaluestodeterminethesizeofthereserve.Forexample,theparvalueofAT&Tsharesislistedas$1percommonshare,whilesharesofAppleInc.haveaparvalueof$0.00001. FaceValuevs.MarketValue Thefacevalueofastockorbonddoesnotdenotetheactualmarketvalue,whichisdeterminedbasedonprinciplesofsupplyanddemand--oftengovernedbythedollarfigureatwhichinvestorsarewillingtobuyandsellaparticularsecurity,ataspecificpointintime.Infact,dependingonmarketconditions,thefacevalueandmarketvaluemayhaveverylittlecorrelation. Inthebondmarket,interestrates(comparedwiththebond’scouponrate)maydetermineifabondsellsaboveorbelowpar.Zero-couponbonds,orthosewhereinvestorsreceivenointerest,asidefromthatassociatedwithpurchasingthebondbelowfacevalue,aregenerallyonlysoldbelowparbecausethat'stheonlyfeasiblewayaninvestorcanreceiveaprofit. IsFaceValuetheSameAsParValue? Yes.Facevaluereferstothedollarvalueofafinancialinstrumentwhenitisissued.Thefacevalueofabondisthepricethattheissuerpaysatthetimeofmaturity,alsoreferredtoas“parvalue.”Bycomparison,thefacevalueofastockisthepricesetbytheissuerwhenthestockisfirstissued.  WhatIstheDifferenceBetweenFaceValueandMarketValue? Whilefacevalueistheoriginalpriceofastockassetbyitsissuer,marketvalueisinfluencedbyexternalsupplyanddemandforces.Marketvalueisthepricethatthemarketwillbear,anditcandiffersignificantlyfromastock’sinitialprice.Forexample,thefacevalueofApplesharesis$0.00001,whilethemarketvalueofitssharescanfluctuateabove$100.  WhatIstheDifferenceBetweenFaceValueandaBond’sPrice? Abond’sfacevalueisfixed,oftenissuedin$1,000denominations.Bycontrast,its’pricefluctuatesinresponsetomarketinterestrates,timetomaturity,andtheissuer’screditrating.Abondmaybepricedabovepar,orbelowparbasedontheseconditions.Forexample,ifinterestratesincrease,bondpriceswilldecline,tradingatadiscounttofacevalueinthesecondarymarket. ArticleSources Investopediarequireswriterstouseprimarysourcestosupporttheirwork.Theseincludewhitepapers,governmentdata,originalreporting,andinterviewswithindustryexperts.Wealsoreferenceoriginalresearchfromotherreputablepublisherswhereappropriate.Youcanlearnmoreaboutthestandardswefollowinproducingaccurate,unbiasedcontentinour editorialpolicy. SecuritiesandExchangeCommission."Schedule10-K2019."AccessedSept.3,2021. AT&T."2019AnnualReport,"Page52.AccessedSept.3,2021. CompareAccounts AdvertiserDisclosure × TheoffersthatappearinthistablearefrompartnershipsfromwhichInvestopediareceivescompensation.Thiscompensationmayimpacthowandwherelistingsappear.Investopediadoesnotincludealloffersavailableinthemarketplace. Provider Name Description RelatedTerms WhatIsaBond? Abondisafixed-incomeinvestmentthatrepresentsaloanmadebyaninvestortoaborrower,ususallycorporateorgovernmental. more WhatIsaCouponRate? Acouponrateistheyieldpaidbyafixedincomesecurity,whichistheannualcouponpaymentsdividedbythebond'sfaceorparvalue. more HowBondValuationWorks Bondvaluationisatechniquefordeterminingthetheoreticalfairvalueofaparticularbond. more DeathPutDefinition Adeathputisanoptionaddedtoabondthatguaranteesthattheheirsofthedeceasedcansellitbacktotheissueratparvalue. more ParValueDefinition Parvaluecanrefertoeitherthefacevalueofabondorthestockvaluestatedinthecorporatecharter. more NominalValueDefinition Nominalvalueofasecurity,oftenreferredtoasfaceorparvalue,isitsredemptionpriceandisnormallystatedonthefrontofthatsecurity. more PartnerLinks RelatedArticles FixedIncome CalculatePVofaDifferentBondTypeWithExcel FixedIncome Whenisabond'scouponrateandyieldtomaturitythesame? FinancialAnalysis ParValuevs.MarketValue:What'stheDifference? CorporateBonds 6BiggestBondRisks Accounting WhatIstheEffectiveInterestMethodofAmortization? FixedIncome WhatIstheDifferenceBetweenYieldandReturn?