Definition
Par value, in finance and accounting, means stated value or face value. From this come the expressions at par, over par and under par.
Par Value
What is ‘Par Value’
The face value of a bond. Par value for a share refers to the stock value stated in the corporate charter. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. Par value for a bond is typically $1,000 or $100. Shares usually have no par value or very low par value, such as 1 cent per share. The market price of a bond may be above or below par, depending on factors such as the level of interest rates and the bond’s credit status. In the case of equity, par value has very little relation to the shares’ market price.
Explaining ‘Par Value’
For example, a bond with par value of $1,000 and a coupon rate of 4% will have annual coupon payments of $40. A bond with par value of $100 and a coupon rate of 4% will have annual coupon payments of $4.
Further Reading
- Optimal investment with stock repurchase and financing as signals – academic.oup.com [PDF]
- Some aspects of Japanese corporate finance – www.jstor.org [PDF]
- The dangers of shares without par value – www.jstor.org [PDF]
- An empirical comparison of published replication research in accounting, economics, finance, management, and marketing – www.sciencedirect.com [PDF]
- How Does the Par Value of a Share Work? – link.springer.com [PDF]
- The pricing of risky corporate debt to be issued at par value – www.sciencedirect.com [PDF]
- Analyzing convertible bonds – www.jstor.org [PDF]
- Corporate income taxes, valuation, and the problem of optimal capital structure – www.jstor.org [PDF]
