What Is Par Value?

Par value is the stated or 澳洲幸运5开奖号码历史查询:face value of a financial instrument, primarily bonds and stocks. The par value is typically required at the time it is issued. For bonds and other 澳洲幸运5开奖号码历史查询:fixed-income assets, it shows the maturity value and the dollar value of the coupon (or interest) pa🐎yments that are due to the bondholder. Also called nominal or original value, par val𝓡ue is the opposite of market value, which fluctuates every day.

Understanding Par Value

Par value is the face value of certain assets, such as a bond. It determines the instrument's maturity value as well as the dollar value of 澳洲幸运5开奖号码历史查询:coupon payments. This is contrary to the asset's market price, which may be above or below par depending on factors like the level of interest rates and its credit status. The most common par value for a bond is often $1,000 but it isn't unusual to see bonds with par values of $100.

A share's par value is stated in the 澳洲幸运5开奖号码历史查询:corporate charter. Shares usually have no par value or low par value, such as one cent per share. Once defined, it is the lowest limit set to the value of a share of stock. The par value, however, is commonly unrelated to a sto﷽ck's market price.

Par value is a primary component of fixed-income securities and represents the value of a contractual agreement between the issuing party and the 澳洲幸运5开奖号码历史查询:bondholder. The issuer of a fixed-income security is liable to repay the lender the p🌳ar value on the maturity date.

Companies issue shares of stock to raise equity, and those that issue par value stocks often do it at a value inconsistent with the actual 澳洲幸运5开奖号码历史查询:market value. This adjustment allows companies to minimize their and the shareholders’ contractual obligations, as par value carries a binding contract between an organization♎ and its shareholders.

Par Value of Bonds

The par value of a bond is the amount of money the issuer promises to repay bondholders at maturity. Bondholders essentially loan money to the bond issuer.

Bonds can trade at a premium or 澳洲幸运5开奖号码历史查询:a discount depending on the level of interest rates in the economy. A bond with 🍒a face value of $1,000 trading at $1,020 is trading at a premium, while another bond trading at $950 is considered a discount bond. Whether a bond is trading at a discount or premium, the issuer always repays the par value to the investor at maturity.

The 澳洲幸运5开奖号码历史查询:coupon rate determines whether a bond will trade at, below, or above par value. The coupon rate is the interest payment made to bondholders, annually or semi-annually, as compensation for loaning the bond issuer money. When market interest rates are lower, bonds trade above par. When market interest rates are higher, bonds trade at a discount.

A bond with a par value of $1,000 and a coupon rate of 4% will have annual interest payments of $40 or꧋ 4% x $1,000.

• 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.
• If market interest rates rise to 5%, the value of the bond drops, and 澳洲幸运5开奖号码历史查询:the bond will trade below par because the bond is paying a lower interest rate to its bondholders compared to the higher interest rate of 5% of other bonds in the market.
• 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%.

While the par value of a corporate bond is usually stated as either $100 or $1,000, municipal bonds typically have par values of $5,000. 澳洲幸运5开奖号码历史查询:Treasury Bills are sold at a discount to par in multiples of $100.

Par Value of Stocks

Some states, including Florida, require that companies set a par value below which shares cannot be sold. To comply with state regulations, most companies set a par value for their stocks to a minimal amount. The par value for shares of Apple (AAPL) is $0.00001, and the par value for Amazon (AMZN) stock is $0.01.

Shares cannot be sold below this value upon 澳洲幸运5开奖号码历史查询:initial public offering (IPO) to reassure investors that no one is receiving preferential🎐 price treatment.

Some states allow the issuance of stock with no par value. An investor can identify no-par stocks on stock certificates as they will have "no par value" printed on them. The par value of a company's stock can be found in the Shareholders' Equity section of the 澳洲幸运5开奖号码历史查询:balance sheet.

Reasons Companies Set Par Value

There are four main reasons why a company might set a par value. This list mainly considers equities Note that any given cꦰompa✱ny may not experience the same requirements or considerations for having to set a par value.

1. Meeting legal requirements. Many jurisdictions have corporate laws that mandate the assignment of a par value to shares upon incorporation. This requirement ensures that companies have a minimum level of capital. In some states, companies have to set par value as part of issuing stock.
2. Offering creditor protection. By setting a floor on the equity capital, par value ensures that there is a base amount of capital that remains within the company. Though companies may not always mean to do this, this protects 澳洲幸运5开奖号码历史查询:creditors by ensuring that not all of the company’s assets can be distributed as dividends.
3. Setting investor perception. Par value, though often set at a nominal amount, can positively influence 澳洲幸运5开奖号码历史查询:investor perceptions. The existence of par value can signal to investors that the company is meeting formal and legal standards. If nothing else, this may enhance their confidence in the company’s financial management and stability.
4. Helping in 澳洲幸运5开奖号码历史查询:accounting and financial reporting. Par value plays a role in accounting. By differentiating the nominal value of shares (par value) from any additional amounts paid by investors (additional 澳洲幸运5开奖号码历史查询:paid-in capital), companies can provide a clearer and more detailed picture of their financial health. This distinction may help aid analysts and regulators.

Par Value vs. Market Value

A financial instrument's par value is determined by the institution that issues it. Market value is the current price at which a bond or stock can be traded on the 澳洲幸运5开奖号码历史查询:open market and constantly fluctuates as inves𒐪tors buy ಞand sell bonds and shares of stock.

A bond can be purchased for more or less tha꧙n its par value, depending on interest rates and market sentiment. Because shares of stocks are commonly issued with a par value near zero, the market value is often higher than the par value. Investors count on gains made by the changing value of a stock based on company performance and market sentiment.

The market value of a security, especially stocks, is also dependent on other factors, ཧincluding:

• 澳洲幸运5开奖号码历史查询:Supply and demand
• Economic conditions
• Prices
• Interest rates
• 澳洲幸运5开奖号码历史查询:Exchange rates
• Investor sentiment
  

Par Value and Accounting

Par value plays a role in accounting. The par value of shares issued by a company is recorded in the common stock account on the balance sheet. Any amount received above the par value is recorded in the 澳洲幸运5开奖号码历史查询:additional paid-in capital (APIC) acc💦ount. Therefore, there are accounting and reporting🦄 presentation implications for what the par value is.

For example, if shares with a par value of $1 are sold for $5 each, $1 per share is reco🅰rded in the Common Stock account, and the remaining $4 per share is recorded in APIC. This separation helps clearꦿly distinguish between the nominal value of shares and the additional capital contributed by shareholders.

Issuing par value stock impacts the balance sheet's equity section presentation. Though the ultimate dollar amount isn't impacted, this distinction provides transparency about the source of equity capital. While par value does not directly influence dividend payments, it impacts the calculation of legal capital, ensuring that a minimum amount of retained earnings is preserved to meet creditor protection requirements. So, it is important from an accounting perspective that these two amounts are recorded differently and according to 澳洲幸运5开奖号码历史查询:generally accepted accounting 🏅principles (GAAP).

For stocks issued with no par value, the total proceeds are credited t♑o the common stock account, simplifying the equity classification and eliminating the concept of legဣal capital associated with par value. There is some accounting simplicity with this method, though they may have hurdles that prevent them from being able to do so.

The Bottom Line

Par value is the face value of a bond or the value of a stock certificate stated in the corporate charter. A stock's par value is often unrelated to the actual value of its shares trading on the stock market. Par value is required for a bond or a fixed-income instrument and defines its maturity value and the value of its required coupon payments.