Par value is central to the mechanics of stock splits, a process companies use to increase share accessibility without changing the overall value of equity. Shares cannot be sold below this value upon initial public offering to reassure investors that no one is receiving preferential price treatment. To the average investor, the par value of a bond is quite relevant, while the par value of a stock is something of an anachronism.

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Par value for a share refers to the nominal stock value stated in the corporate charter. Shares can have no par value or very low par value, such as a fraction of one cent per share. Par value of securities issued is meant to highlight organizations' real or minimum value and discloses the capitalization target to be satisfied through the issue of securities.

The face value, while arbitrary in appearance, is determined by the company so that they can get real numbers for growth and projected needs. J.B. Maverick is an active trader, commodity futures broker, and stock market analyst 17+ years of experience, in addition to 10+ years of experience as a finance writer and book editor. The par value has practically no effect on the market value of a stock. The market determines how much a stock is worth based on a variety of factors, but par value isn’t one of them. The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

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1. Par value of securities issued is meant to highlight organizations' real or minimum value and discloses the capitalization target to be satisfied through the issue of securities.
2. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer.
3. Securities like stocks or bonds are usually issued with a face value.
4. So, if the stock sells for $10, $5 million will be recorded as paid share capital, while $45 million will be treated as additional paid in capital.
5. As the par value is often no more than a few pennies, it’s a formality to meet certain states’ legal requirements for securities or to help manage taxes for companies.
6. The face value of a bond is the amount that will be repaid to the bondholder at maturity.

One of par value’s key roles is in establishing legal capital—a minimum amount of equity that must remain in the business. This legal capital requirement offers reassurance to creditors, enhancing corporate stability. Some companies calculate dividends as a percentage of par value rather than market value, influencing the dividend payout ratio. For example, a company with low-par stock might offer a consistent dividend based on its par value, providing predictable returns for shareholders regardless of fluctuations in market price. For example, if a bond with a par value of $1,000 has a 5% coupon rate, it might trade at $1,050 when market interest rates are below 5%, or at $950 if rates exceed 5%. In practice, we’ve found that investors often look to par value as a stable indicator when evaluating bond returns in changing markets.

While preferred stocks’ dividends are not guaranteed like bond interest payments, they are much less likely to be waived. Par value is the face value of a bond and determines a bond or fixed-income instrument's maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par, depending on factors such as the level of interest rates and its credit status. The par value for a bond is often $1,000 or $100, the usual denominations in which they are issued. Nominal value is a critical component of many bond and preferred stock calculations, including interest payments, market values, discounts, premiums and yields. The nominal value of a bond will vary from its market value based on market interest rates.

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And to avoid this issue altogether, consider purchasing mutual funds or exchange-traded funds (ETFs) that contain hundreds or thousands of bonds. If market interest rates fall to 4%, the value of the bond will rise and the bond trade above par since the 5% coupon rate is more attractive than 4%. From setting a base price for stock issuance to influencing bond returns, par value helps structure financial transactions and provides transparency in reporting. Even though it often doesn’t affect market prices, par value supports legal, accounting, and regulatory frameworks that companies rely on to manage their capital and meet compliance standards. When a company issues shares, the par value of these shares is recorded in the common stock account on the balance sheet.

If market interest rates fall to 3%, the value of the bond will rise and trade above par since the 4% coupon rate is more attractive than 3%. If a 4% coupon bond is issued when market interest rates are 4%, the bond is considered trading at par value since both market interest and coupon rates are equal. Likewise, if market rates climb to 5%, bond investors won’t be willing to pay as much for a bond paying a coupon rate of just 4%. Prices of preferred stock are quoted per share and may be higher or lower than the par value.

When interest rates are lower than the coupon rate of a bond, or dividend rate of a preferred stock, the market price rises. When interest rates are higher than the coupon or dividend rate, the price falls. Par value is the nominal or face value of a bond, share of stock, or coupon as indicated on a bond or stock certificate. The certificate is issued by the lender and given to a borrower or by a corporate issuer and given to an investor.

In the same way, improvements in the company's situation allow it to raise funds at lower rates. A bond will trade above par value if its coupon rate is above the prevailing market rates. For example, if a bond pays a 4% coupon, and market rates fall to 3%, the value of the bond increases above its par value. Common-stock par value is shown on the stock certificate and is established by the board of directors at the time the stock is issued.

The calculations can get more complicated when there’s more than one coupon payment left for a bond. Additionally, market rates are constantly changing, so nailing down an exact price for a bond offering relative to similar offerings isn’t always possible. But it’s a framework for determining the market value of a particular bond. It’s also used to determine the coupon payment, which is a percentage of the par value. Most bonds have a par value of $100 or $1,000, but businesses and governments can par value vs face value issue bonds at any denomination they choose.

Par value is commonly used to determine the price an investor is willing to pay for a bond. The principal of the bond, also called its face value or par value, refers to the amount of money (usually $100 or $1000) the issuer agrees to pay the lender at the bond’s expiration. The principal of the bond, also called its face value or par value, refers to the amount of money the issuer agrees to pay the lender at the bond's expiration. For bonds, interest rates and credit ratings determine market value, which can be greater or less than par value.