What Is Par Value? - The Balance

Par Value vs. Face Value Assets&Markets Bonds WhatIsParValue? ParValueExplained ••• TimRobberts/GettyImages TableofContents Expand TableofContents WhatIsParValue? HowParValueWorks ParValuevs.FaceValue ParValuevs.MarketValue WhyKnowingParValueMatters HowtoFindParValue By JeffreyMGreen FullBio LinkedIn JeffreyM.Greenhasover40yearsofexperienceinthefinancialindustry.Hehaswrittendozensofarticlesoninvesting,stocks,ETFs,assetmanagement,cryptocurrency,insurance,andmore.Jeffhasheldlifeandhealthinsurancelicensesinmultiplestates,includingFINRASeries7,66,and24,plusCertifiedRetirementCounselorandCertifiedDivorceFinancialAnalystdesignations.  Learnaboutour editorialpolicies UpdatedFebruary20,2022 Reviewedby AkhileshGanti Reviewedby AkhileshGanti FullBio AkhileshGantiisaforextradingexpertandregisteredcommoditytradingadvisorwhohasmorethan20yearsofexperience.Heisdirectlyresponsibleforalltrading,risk,andmoneymanagementdecisionsmadeatArctosFXLLC.HehasMasterofBusinessAdministrationinfinancefromMississippiStateUniversity. Learnaboutour FinancialReviewBoard Parvalueisthevalueofabondorshareofstockasshownonthebondorstockcertificate.Unlikethemarketvalue,theparvaluesofstocksandbondsdon'tchange.Parvaluehasdifferentimplicationsdependingonwhetherit’sforabondorstock. WhatIsParValue? Theparvalueofabondisitsfacevalue.Inotherwords,it’stheloanprincipaltheissuerpaysyouattheendofthebond'sterm.Theinterestyouearnonthebond(“couponrate”)isapercentageofpar. Parvalueisalsoapricingbenchmarkforsharesofpreferredstock.Corporationsissuepreferredstockwithadividendratethat,likeacouponrate,isapercentageofparvalue.Unlikecommonstock,preferredshareholdersdon’tusuallyhavevotingrights. Common-stockparvalueisshownonthestockcertificateandisestablishedbytheboardofdirectorsatthetimethestockisissued.Insomestates,theparvalueofcommonstockissuedcan’tbewithdrawnorusedbytheissuingcompany.Forthisreason,companiesoftenissuecommonstockwithaparvalueof1centpershareorless;inthisway,theycanavoidtyingupexcessiveamountsofmoneyinstock.Also,higherparvaluescanleadtohighertaxesinsomestates. HowParValueWorks Parvaluesaretypicallyusedaspricingmeasuresforbondandpreferredstockbuyers.Investorsbuyandsellbondsatpricesthatareabovepar(atapremium),belowpar(atadiscount),oratpar.Companiesissuecorporatebondswithaparvalueofupto$1,000,whileparvaluesforgovernmentandagencybondsmaybehigherorlowerthan$1,000.Forexample,theparvalueforU.S.Treasurybondsis$100whiletheparvalueforGinnieMaebondsisaminimumof$25,000. Pricequotesforbondsareapercentageofpar.Forexample,abondpriceof95meansthebondispricedat95%ofitsparvalue.Conversely,abondpriceof105meansitspriceis105%ofitsparvalue.Abondsellingbelowparmeanstheinterestyouwouldreceivefromtheinvestmentishigherthanthecouponrate. Investorswhopaymorethanparreceiveinterestthatislowerthanthecouponrate. Pricesofpreferredstockarequotedpershareandmaybehigherorlowerthantheparvalue.Likebonds,ifthesharepricepaidishigherthanpar,youreceivealowerrateofreturnthanthedividendrate.Ifthesharepricepaidislowerthanpar,youreceiveahigherrateofreturnthanthedividendrate. ParValuevs.FaceValue Parvalue,facevalue,andnominalvalueallrefertothesamething.Forbonds,it’stheprincipaloftheloantoberepaid.Forpreferredstock,it’sthevaluethatdividendpaymentsarebasedon.Forcommonstock,it’susedtocomplywithstateregulations. ParValuevs.MarketValue Thecompanyorgovernmententityofferingabondorstockestablishestheparvalue.ThemarketpriceisthepriceatwhichyoucanbuyandsellstocksorbondsonanexchangelikeNASDAQortheNYSE.Andwhileapreferredstockorbond’sparvalueremainsthesame,marketvaluefluctuates,asisoftenseenwiththestockandbondmarkets. Themarketpricechangesbasedonavarietyofconditions.Forinstance,thepricesofbondsandpreferredstockareverysensitivetochangesininterestrates.Wheninterestratesarelowerthanthecouponrateofabond,ordividendrateofapreferredstock,themarketpricerises.Wheninterestratesarehigherthanthecouponordividendrate,thepricefalls. WhyInvestorsNeedToKnowParValue Thedollarvalueofbondinterestandpreferred-stockdividendpaymentsarebasedontheparvalue.Knowingtheparvalueisessentialforinvestorstocalculateandcomparethereturnsofdifferentbondsandpreferredstocks. HowToFindParValue Youcanusuallyfindparvaluesforpreferredstocksintheirquotesandthroughyourbroker-dealer’sresearchtools.Parvalueforbondsisavailableinaprospectus,whichistheofferingdocumentthecompanyfileswiththeSecuritiesandExchangeCommission(SEC).Youcanfindacompany’sprospectususingtheSEC’sonlineEDGARsystemorgetitfromyourbroker-dealer. KeyTakeaways Parvalueisapricingbenchmarkforbondsandpreferredstock.Theparvalueofabondistheloanprincipal.Theparvalueofpreferredstockisusedtocalculatethedividendpayments.Theparvalueofcommonstockhasnoimpactoninvestors. ArticleSources Vangaurd."GovernmentNationalMortgageAssociationBonds."AccessedJan.8,2021. FINRA."BondBasics."AccessedJan.8,2021. Share Tweet Share Email WhatIsPaid-inCapital? LearnMoreAboutPreferredStockETFsandWhichAretheBest WhatIsCurrentYield? WhatIsaTapIssue? WhatIsFaceValue? HereIsaNewInvestor'sGuidetoPremiumandDiscountBonds WhatIsDenominationinFinance? WhatIsBondValuation? WhatIsCommonStock? WhatIsPerpetualPreferredStock? Here’sWhyBondPricesDropWhenInterestRatesGoUp. WhatMakesConvertiblePreferredStockDifferent? WhatIsCleanPrice? WhatAreStocks? InvestingforBeginners LearntheDifferenceBetweenYieldtoCallandYieldtoWorst