What Is Par Value?
Par value, also known as nominal or original value, refers to the face value of a bond or the value issued on a stock certificate as outlined in the corporate charter.
Stock certificates for purchased shares reflect the par value. This
Related Terms: Coupon Rate, Market Price, Nominal Value, Fixed-Income Instruments, Face Value
References
- Merrill “The Terminology of Bonds”.
- Business Development Bank of Canada. “Par Value of Shares”.
- Financial Industry Regulatory Authority. “Bond Basics”.
- U.S. Security and Exchange Commission. “Interest Rate Risk – When Interest Rates Go Up, Prices of Fixed-Rate Bonds Fall”, Pages 1-2.
- Financial Industry Regulatory Authority. “Bond Basics”.
- Municipal Securities Rulemaking Board. “How Are Municipal Bonds Quoted and Priced?”, Page 2.
- U.S. Department of the Treasury, Bureau of the Fiscal Service. “Treasury Bills”.
- The Florida Legislature. “The 2021 Florida Statutes”.
- U.S. Securities and Exchange Commission. “Apple 2021 10-K”, Page 1.
- U.S. Securities and Exchange Commission. “Amazon 2021 - 10-K”, Page 1.
- The Iowa Legislature. “Chapter 493: Stock Without Par Value”, Page 1.
- Museum of American Finance. “Stock Certificate Reference Guide”, Page 2.
- U.S. Security and Exchange Commission. “Financial Reporting Manual”.
Get ready to put your knowledge to the test with this intriguing quiz!
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## What is the definition of "par value" in the context of stocks?
- [x] The face value of a stock as stated in the corporate charter
- [ ] The market price of a stock
- [ ] The dividend yield of a stock
- [ ] The income generated from a stock
## What is the par value of most common stocks today?
- [ ] $100
- [ ] $50
- [ ] $10
- [x] As little as $0.01
## What significance does par value have in relation to bonds?
- [x] It's the amount paid to bondholders at maturity
- [ ] It's the interest rate of the bond
- [ ] It's the current trading price of the bond
- [ ] It's the coupon payment received by bondholders
## How is par value typically used in corporate balance sheets?
- [x] To record the minimum value of the issued shares
- [ ] To calculate the company's net income
- [ ] To determine the market capitalization
- [ ] To assess the dividend payout ratio
## Why did par value originate in the past?
- [x] To specify a minimum price that shares could be issued at
- [ ] To reflect the productivity of a company
- [ ] To offer a variable financial metric
- [ ] To denote the company's profit margins
## Which of these statements about par value and no-par value stocks is correct?
- [ ] Companies cannot issue stocks without par value
- [x] No-par value stocks are issued without a par value stated in the charter
- [ ] Par value only applies to preferred stocks
- [ ] Par value represents the stock’s intrinsic value
## In what way does par value affect investors' decisions?
- [ ] It largely influences investors' buy/sell choice
- [ ] It indicates future stock performance
- [x] It is mostly symbolic nowadays in stock evaluations
- [ ] It directly impacts dividend payments
## What is the typical modern-day importance of par value for equity investments?
- [x] It has little practical importance for equity investments
- [ ] It is crucial for determining market price
- [ ] It must be consulted before making any equity investment
- [ ] It affects the timing of stock market trades
## How is the par value of preferred stock different from common stock?
- [ ] It holds no specific connotations for investors
- [x] It represents the price at which dividends are paid
- [ ] It is irrelevant to the issuance price
- [ ] It represents the fair market value of the preferred stock
## Why might a corporation issue stock with a very low par value like $0.01 or $0.10?
- [x] To avoid regulatory issues with issuing stock at prices below par
- [ ] To attract more premium-interest investors
- [ ] To reduce company liabilities
- [ ] To significantly impact market pricing strategy
