# What is Par Value?

Par Value, otherwise known as Face Value or Nominal Value, is the value of a security as stated by the issuing entity. A security is often offered for this standard denomination of money, which may or may not correspond to its current market value.

In this context, the term “security” refers to a financial instrument representing ownership, a debt agreement, or rights to ownership that can be bought and sold. Examples of securities include stocks, bonds, options, futures, and mutual funds.

## Applications of par value

#### In Stocks:

• Initial Value

In stocks, par value is the minimum price at which shares are initially issued.

• Legal implications

It may have legal consequences, especially if it is being sold at the minimum price for which shares can be sold.

• Symbolic Value

Today, the par value of a stock is often set at a minimal amount, occasionally, even a fraction of a cent, making it largely symbolic.

#### In Bonds:

• Redemption Value

For bonds, the par value is the amount paid to the bondholder at maturity.

• Interest Calculation

Bondholders get interest in the form of a specified percentage of the par value, which is also a basis for calculating interest payments.

Investopedia.com, offers the following example:

“For example, if a bond with a par value of \$100 is purchased with a maturity date one year in the future, the bondholder is entitled to collect \$100 from the issuing company at the end of that year—in addition to whatever interest payments the bond yielded.”

## Implications

#### For investors:

• Stocks

Par value has limited significance for stock investors in modern markets.

• Bonds

It is important to bond investors because it impacts both the maturity return and the periodic interest payments.

#### For Companies:

• Capital Structure

A company’s legal capital structure may be affected by par value decisions for its stock.

• Bond Issuance

When issuing bonds, the par value can influence investors’ perceptions and appeal of the bond.

## Challenges and considerations regarding par value

There are several challenges people may face, including:

• Misinterpretations

In some cases, par value is mistakenly equated with market value, which may lead to some confusion among inexperienced investors.

• Regulatory Requirements

Different jurisdictions have their own unique legal standards that companies must adhere to regarding par value.

Written by Nicolas Perez Diaz