Difference Between Par Value and Face Value
Aspect |
Par Value |
Face Value |
---|---|---|
Definition |
Par value is the amount promised by the issuer to pay back investors when the security matures. |
Face value is the fixed value printed on the security certificate. |
Stability |
The par value stays the same throughout the security’s life. |
Face value also remains constant except for changes like stock splits. |
Applicability |
It’s mainly associated with bonds but can also apply to stocks. |
It’s primarily used for stocks and bonds but can be used for other financial instruments too. |
Usage |
Par value helps in calculating interest payments on bonds. |
Face value is important for accounting and setting the minimum value of a share. |
Relation to Market Value |
Par value might not show the actual market value of the security. |
Face value may be quite different from the market price influenced by supply and demand. |
Investor Understanding |
It helps investors find out how much the issuer has to repay. |
It’s used for record-keeping and gives a clear idea of the security’s basic value. |
Investment Assessment |
Understanding par value helps in assessing investment risks accurately. |
Understanding face value is important to know the starting value of investments. |
Differences between Par Value and Face Value
In finance, terms like “par value” and “face value” might seem tricky, but they’re important for investors. “Par value” is the amount promised by the issuer, while “face value” is the printed nominal value of the security. Although they seem similar, they have distinct meanings. Par value stays the same, representing repayment, while face value remains fixed but might not reflect the market’s actual value. Knowing these terms helps investors understand investment risks and make wise choices.