What Is Face Value? - The Balance

Face or Par Value and Bonds Assets&Markets Bonds WhatIsFaceValue? FaceValueofanInvestmentExplained ••• Westend61/GettyImages TableofContents Expand TableofContents WhatIsFaceValue? FaceorParValueandBonds FaceValueandStocks By RoccoPendola FullBio LinkedIn Twitter RoccoPendolahaswrittenhundredsofarticlesaboutpersonalfinanceandfinancialmarketsoverthepast10yearsandspentfiveyearsasaneditorcoveringinvestingcontentatSeekingAlpha.HismostrecentworkcanbeseenonTheBalance,SeekingAlpha,andMedium. Learnaboutour editorialpolicies UpdatedMarch03,2022 Reviewedby AndySmith Reviewedby AndySmith FullBio LinkedIn AndySmithisaCertifiedFinancialPlanner(CFP),licensedrealtorandeducatorwithover35yearsofdiversefinancialmanagementexperience. Heisanexpertonpersonalfinance,corporatefinanceandrealestateandhasassistedthousandsofclientsinmeetingtheirfinancialgoalsoverhiscareer. Learnaboutour FinancialReviewBoard Whilefacevalueappliestobothstocksandbonds,it’safarmoreimportantconsiderationforbondinvestors.Initssimplestterms,facevaluerepresentsthenominalvalueofastockorbond.It’sthenumberyouusedtoseeonaphysicalstockorbondcertificate. Learnwhatfacevalueis,whenitmatters,andhowtobestconsideritinyourinvestingendeavors.We’llalsorefertofacevalueas“parvalue.”Considerthetermsinterchangeable,withparvaluecomingupmoreofteninrelationtobonds. WhatIsFaceValue? Parvalue,orfacevalue,isa“staticvalue”assignedwhenacompanybringsstockorabondtomarket.Unlikemarketvalue,parorfacevaluedoesn’tchange.You’llfindtheparvalueprintedonthestockorbondcertificate. Theparvalueofpreferredstockdeterminestheamountofthedividend.However,theparvalueforcommonstockisn’tparticularlyrelevanttoinvestorssincetheycan’tbuyorsellsharesatthatprice.Instead,investorsinacompany'scommonstockpaymarketvalue,whichisdeterminedbysupplyanddemand. Mostbondshaveaparvalueof$100or$1,000.Forbonds,interestratesandcreditratingsdeterminemarketvalue,whichcanbegreaterorlessthanparvalue. FaceorParValueandBonds Asabondinvestor,it’simportanttoknowthatatmaturity,thebondissuerbuysthebondbackbypayingtheparvaluetotheownerofthatbond.Asinterestrateschange,thepriceofabondfluctuatesfromitsparvalue.Risingratestypicallymeanfallingbondprices;fallingratesmeanrisingbondprices. Bondsgenerallyretreatbacktoorclosertoparvalueastheyapproachmaturity. Here’sastraightforwardexampletoillustratebondfacevalue: Acompanyissuesbondsworthatotalof$20,000,000.Ataparvalueof$1,000,itcanissue20,000bonds,whichtheissuingcompanypaysbackatmaturity.Whenthebondshittheopenmarket,theirvaluecanchange.Abondcantrade: Abovepar:Itsellsforapremium.Belowpar:Ittradesatadiscount.Atpar:Ittradesatitsparorfacevalue. Ifabondtradesbelowpar,itcanindicateacompany’sfinancialsareinquestionorthatinterestrateshaverisensincethatbond’sissue.Ifittradesabovepar,thecompany’screditratingmayhaveimprovedorperhapsinterestrateshavedeclined. Ultimately,anassessmentofacompany’sfinancialstatements,plusanunderstandingofthelargerinterest-rateenvironmentcanhelpyouevaluatewhethertopurchaseaspecificbond. FaceValueandStocks Theparvalueofpreferredstockisanimportantconsiderationwhenassessingtheprofitabilityofowningpreferredstock,asithelpsdetermineitsdividendpayment.Forexample,ifacompanyissuespreferredstockataparvalueof$100witha2%dividendrate,itwillpay$2peryearindividends.Inthisway,preferredstockfunctionslikebonds. Withcommonstock,facevalueisconsiderablylessmeaningfultoeverydayinvestors.It’saregulatoryrequirementinsomestateswherecommonstockcannotbeissuedforlessthanparvalue.Ittypicallyhasnocorrelationwiththemarketpriceofastock,whichissetbysupplyanddemand. sec.gov LookingatanAmazon.com,Inc.quarterlyreport,youcanseeinthebottomleftcornerthattheparvalueofitscommonstockis$.01pershare. KeyTakeaways Facevalue,alsoknownasparvalue,representsanominalvalueofastockorbondsetbytheissueratissuance.Facevaluemattersmoretobondandpreferredstockinvestorsthanitdoestocommonstockinvestors.Withcommonstocks,facevaluedoesn’timpactthemarketvalueatall;that’suptothedynamicsofsupplyanddemand.Bondscantradeaboveorbelowparvalue,resultinginthemsellingateitherapremiumordiscount.Thefacevalueofapreferredstockdeterminesthedividendpaymenttheownerofthatstockreceives. ArticleSources U.S.SecuritiesandExchangeCommission."Amazon.com,Inc.QuarterlyReport."AccessedJan.22,2021. Share Tweet Share Email WhatIsPaid-inCapital? HereIsaNewInvestor'sGuidetoPremiumandDiscountBonds WhatIsDenominationinFinance? WhatIsCurrentYield? WhatIsParValue? WhatIsaTapIssue? LearnMoreAboutPreferredStockETFsandWhichAretheBest Here’sWhyBondPricesDropWhenInterestRatesGoUp. WhatIsBondValuation? WhatIsCommonStock? WhyDoBondPricesandYieldsMoveinOppositeDirections? WhatMakesConvertiblePreferredStockDifferent? WhatAreStocks? WhatIsCleanPrice? WhatIsPerpetualPreferredStock? Stocksvs.ETFs:WhichIsRightforYou?