Par Value

What is Par Value?

Par Value represents the face value or nominal value assigned to a security, most commonly a stock or bond, at the time it is issued. It serves as a baseline reference for legal, accounting, and capital-raising purposes.

Key Takeaways

• Par Value is a nominal, legally defined amount, not a market valuation.
• For bonds, Par Value determines the principal repaid at maturity.
• For stocks, Par Value is often set very low to minimize legal capital requirements.

Understanding Par Value

Par Value originally represented the real value of securities when markets were less fluid. Today, its function differs between bonds and stocks. For bonds, Par Value (typically $1,000 in corporate bonds) defines the redemption amount the issuer must repay. Coupon rates are calculated relative to this value.

In stocks, Par Value has little to do with trading price. Most corporations assign extremely low Par Values (e.g., $0.01 per share) to reduce legal capital thresholds and increase flexibility in issuing equity. In jurisdictions where Par Value is still required, it helps define a company’s stated capital.

Par Value also influences accounting entries during issuance. Shares cannot legally be sold below Par Value, and excess over Par Value is recorded as additional paid-in capital.

Formula (If Applicable)

Bond Interest Payment Formula
Interest Payment = Par Value × Coupon Rate

Example: A bond with a $1,000 Par Value and a 5% coupon pays $50 annually.

Real-World Example

In global bond markets, U.S. Treasury bonds are typically issued with a Par Value of $100, allowing investors to know the precise amount they will receive at maturity. In corporate finance, companies such as Apple issue shares with extremely low Par Values (e.g., $0.00001) to maintain compliance without restricting market pricing.

Importance in Business or Economics

Par Value provides structure in financial securities, enabling predictable repayment amounts for bondholders and establishing legal minimums for equity issuance. It reduces ambiguity for investors, standardizes accounting practices, and supports regulatory frameworks across regions.

Types or Variations (If Relevant)

Bond Par Value: Redemption value at maturity.
Stock Par Value: Nominal value used for legal capital determination.
No-Par Value Stock: Shares issued without a stated Par Value.

Related Terms

• Face Value
• Coupon Rate
• Additional Paid-In Capital

Sources and Further Reading

• Investopedia — Par Value: https://www.investopedia.com/terms/p/parvalue.asp
• Corporate Finance Institute: https://corporatefinanceinstitute.com/resources/valuation/par-value
• SEC Investor.gov Glossary: https://www.investor.gov/introduction-investing/investing-basics/glossary

Quick Reference

• Bonds return Par Value at maturity.
• Par Value rarely equals market value.
• Stock Par Value supports legal and accounting compliance.

Frequently Asked Questions (FAQs)