• May 2019
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Par Value

A bond’s face value or a stock’s nominal value as stated in its formation documents. Par value is more important for bonds than it is for shares, because of their stated maturity date. Shares typically have nominal or no par value (e.g., 1 cent per share). As a result, a stock’s par value has virtually no relation to its market price, although a bond’s par value is used to determine the cash value of coupon payments. Par value is commonly referred to as face value or nominal value.

Because par value represents the value of a bond when issued, the market price of a bond at any given time may sit above or below par. For example, a bond’s credit status and fluctuating interest rates may impact the market value of a bond in ways that push it above or below par, even though its par value stays the same. The concept of bond-related par value is important because it helps investors understand how much they will receive in exchange for waiting to cash any given bond out until it reaches its maturity date.

It is important to note that par value of a bond is not necessarily its purchase value when issued. Bonds, like other assets, may be sold at a premium or at a discount. So, although the par value of a bond helps to determine its value upon its maturity date and is technically its face value when issued, par value does not necessarily represent a bond’s purchase value when issued.  

 

EXAMPLE:

Kid: “You’re saying that the par value of this bond is worth $50 if I wait until next week to cash it?”

Mom: “Yep. If you don’t wait until its maturity date to cash it, you’ll only get $10.”

Kid: “Not worth the wait! I gotta have candy and new baseball cards NOW.”