What Is Par Value? Definition and Examples

What Is Par Value? Definition and Examples ...

The par value is the primary value for a security.

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Contents

  • What Is Par Value?
  • Par Value Meaning by Security
  • Which States Require Par Value?
  • What if a Stock Goes Below Par Value?
  • Frequently Asked Questions (FAQ)

What Is Par Value?

Par value is the nominal or initial value of a security, namely a stock or a bond.

When a company authorizes shares, it sets the par value for shares to be issued, usually an amount greater than zero. A company''s stock must trade above the minimum legal requirement set by its par value, which means that the stock cannot be purchased, sold, or traded at less than its par value. Although setting par value depends on the country in which the company is licensed, because some states do not set parameters on par value.

Par Value Meaning by Security

Par value has a different meaning for stock and bonds, and this section reveals the differences.

The par value is defined on a stock certificate, but it does not necessarily reflect the market value.

The company''s par value is usually quite low so that the risk of market price falling below the minimum legal obligation is minimized. Many companies have set the nominal value at $0.01 a share, while some businesses go to extremes. Apple''s common stock, for example, is 1/1000 of a cent.

When it comes to bonds, par value is perceived as value, or the amount that a bond can be redeemed for once it has reached maturity. For example, the US Treasury offers a 10-year bond with a par value of $1,000 that pay interest on a regular basis. The bond may be redeemed at its par value upon maturity, and the Treasury must pay that amount.

In more bond investors, when the price is below face value, its above par, or at a premium; at the same price, its at par.

TheStreet Dictionary Terms

What Is Par Value?Definition and Examples

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Source: Corporate Finance, Berk and DeMarzo

Bond PricePhraseCoupon Rate

Greater than face value

above par or at a premium

Coupon Rate > Yield to Maturity

Equal to face value

at par

Coupon Rate = Yield to Maturity

Less than face value

below par or at a discount

Coupon Rate < Yield to Maturity

Corporate Finance, Berk and DeMarzo Source

Greater than face value

Above or at a premium, you should be able to get things done.

Yield to Maturity in Coupon Rate

Equal to the potential

at parity

Yield to Maturity in the Coupon Rate

Weniger than we should be presented with value.

At a discount or below par, you may pay for it.

Yield to Maturity in the Coupon Rate

Corporate Finance, Berk and DeMarzo Source

Greater than the face value

Above or at a premium

Yield to Maturity > Coupon Rate

Equal to the face value

at parity

Yield to Maturity on Coupon Rate

More than half of the world''s expected value

At an discounted price, please pay a fraction of the cost.

Yield to Maturity with Coupon Rate

Which States Require Par Value?

When companies issue shares, some states require them to set par value, but this is not the case for removing this provision. Delaware, which is a popular state for corporations to incorporate because of the ease of filing, is among the states no longer requiring par value.

What if a Stock Goes Below Par Value?

If a stock starts to trade below its par value, it would violate a company''s charter and would fail to meet its legal minimum requirement. It would also be a sign that the company is insolvent. However, litigations rarely occur.

The Securities and Exchange Commission hasn''t established standards on par value, but it has become an issue with the state in which the company was chartered. Shareholders would file a lawsuit with a tribunal in the United States.

Frequently Asked Questions (FAQ)

Following are some of the most common questions investors ask about par value.

Par value is the nominal or face value of a share or a bond. In other words, par value and face value are usually the same.

To do this, a corporation may change its stock par value, but it would need to alter its provisions of incorporation.

Following a stock price split, a company''s stock price has changed, but the par value has gone unchanged.

The par value of a corporation isn''t necessarily negative. It typically sets its par value at a number greater than zero.

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