Par Value and Face Value
How will the market value differ from the par value?
Par value is the set value of a security at issuance, representing the issuer’s commitment to repay, while market value is the current price at which the security is traded in the market. Par value remains constant, while market value fluctuates based on market demand and supply.
Why do some securities have par value while others don’t?
Par value is common in bonds, ensuring clarity on repayment. However, securities like common stocks may lack a par value or have a nominal one because their value is determined by market dynamics rather than a fixed amount set by the issuer.
How does face value differ from book value?
Face value is the nominal value printed on the security, serving accounting purposes, while book value is a company’s total assets minus liabilities, reflecting its net worth on financial records.
Can a security’s market value exceed its face value?
Yes, a security’s market value can surpass its face value, often driven by high demand or positive market sentiment, pushing its price above the nominal face value.
Why is understanding par value important for investors?
Understanding par value helps investors assess the issuer’s repayment obligation and grasp the fundamental worth of the security, aiding in making informed investment decisions.
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.