What is Par Value?

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Par value, also known as nominal or original value, is the face value of a bond or the value of a stock certificate, as stated in the corporate charter.Stock certificates issued for purchased shares show the par value. The par value of shares, or the stated value per share, is the lowest legal price for which a company sells its shares.Par value is required for a bond or a fixed-income instrument and shows its maturity value and the dollar value of the coupon, or interest, payments due to the bondholder.

Definition

Par value, also known as nominal or face value, is the face value of a bond or the value of a stock certificate as stated in the company's charter. The stock certificate issued upon purchasing shares displays the par value. The par value of a stock, or the face value per share, is the minimum legal price at which a company can sell its shares. Bonds or fixed-income instruments require a par value, which indicates their maturity value and the dollar value of interest or coupon payments to be made to bondholders.

Origin

The concept of par value originated in the early financial markets when trading stocks and bonds primarily relied on paper certificates. Par value was initially used to determine the minimum issuance price of stocks and the maturity payment amount for bonds. Over time, although the operation of stock markets has evolved, par value remains an important component in corporate charters.

Categories and Features

Par value is mainly divided into the par value of stocks and the par value of bonds. The par value of stocks is usually a nominal amount, reflecting the minimum legal price at which a company can issue shares. The par value of bonds indicates the amount to be paid at maturity and is used to calculate interest payments. In modern markets, the par value of stocks has little impact, while the par value of bonds directly affects investor returns.

Case Studies

Case 1: Apple Inc. set a par value of $0.00001 per share in its stock issuance, a symbolic amount used mainly for legal purposes rather than reflecting market value. Case 2: U.S. Treasury bonds typically have a par value of $1,000, meaning that investors will receive a $1,000 principal payment at maturity, with interest calculated based on the par value.

Common Issues

Investors often misunderstand the relationship between par value and market value. Par value does not reflect the market trading price of stocks or bonds but is a legal and accounting concept. For stocks, par value has limited impact on investment decisions, whereas for bonds, par value is crucial for calculating returns.

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