What is a Par Value?

Answer:
Par value has different meanings for stocks

and bonds. Par Value is the face value of a bond or a dollar amount that is assigned to a security.

Par values vary for fixed income products. For example, corporate bonds usually have par values of $1,000 while municipal bonds are usually $5000 and federal bonds are $10,000.

Other products can have different par values. Par value is the face value when the bond matures. However, in the secondary market, interest rates affect the bond’s price.

When interest rates are higher than a bond’s coupon rate, the bond is discounted and sold below par value. If the interest rates are lower, the bond is sold above par value.

Common stocks today rarely have a stated par value. These stocks usually have a par value of $0.01 or no par value at all. The amount bears no relationship as to its market value.

Instead, a low par value such as one penny or below ensures that shares aren’t issued below par value. Par value works a little differently for preferred stock where par value is used to calculate dividends.