Par Value

What Is Par Value?

Par value is the stated face amount of a security, set by the issuer and printed on the bond or stock certificate. For a bond, par value is the amount the issuer generally promises to repay at maturity, and it is also the base used to calculate periodic interest payments. For a stock, par value is a nominal figure written into the company's charter. It is usually a very small amount and does not reflect what the shares are worth.

How Par Value Works for Bonds

A bond with a par value of $1,000 and a coupon rate of 5% pays $50 in interest each year, regardless of its market price. The market price, however, moves with interest rates and the issuer's creditworthiness. When the market price is below par, the bond trades at a bond discount. When it is above par, the bond trades at a bond premium. A bond priced exactly at par is said to trade "at par." If the issuer repays the bond in full at maturity, the holder receives the par value back, whatever was paid on the secondary market.

Par Value for Stocks

For common stock, par value is mostly a legal and accounting matter. The par value of issued shares is recorded in the equity section of the balance sheet, and the rest of the sale price is usually booked as additional paid-in capital. Corporate law in many places bars issuing shares below par, which is why par is often set low. Par value has no fixed link to the market value of a stock, so a share with a very low par value can trade at a much higher price. Some companies issue no-par stock, which has no stated value at all.

Why It Matters to Investors

For bond investors, par value is the reference point for quoting prices, calculating yield, and understanding the size of each coupon payment. Stock investors generally can set par value aside when judging a share's worth, since it is mainly a bookkeeping figure. It is still worth checking when reading financial statements or the terms of a security.