Par Value vs Market Value: What’s the Difference?

Kat has expertise in what is a provision for income tax and how do you calculate it insurance and student loans, and she holds certifications in student loan and financial education counseling. This list mainly considers equities Note that any given company may not experience the same requirements or considerations for having to set a par value.

In some states, the company may not legally be required to assign this value. The company must indicate the share’s no-par value on the stock certificate or within its articles of incorporation. On the other hand, if the market price of the stock falls below the par value, the company may be liable to shareholders for the difference. Most companies opt to set a minimum par value for their stock shares to circumvent this scenario. If you bought shares of our hypothetical preferred stock for $30, then you’d still receive $1.25 per share in dividends but your effective interest rate would fall to 4.2%.

1. In short, it becomes a legal obligation for firms to not sell those shares at anything less than this par price.
2. For example, as of the end of FY 2023, Apple Inc. (AAPL) had total assets of $352.58 billion and $290.44 billion of total liabilities.
3. Whether a bond is trading at a discount or premium, the issuer always repays the par value to the investor at maturity.

A bond selling below par means the interest you would receive from the investment is higher than the coupon rate. Shares can be issued below par value, though doing so would be unfavorable for the issuing company. The company would have a per-share liability to shareholders for the difference between the par value of the stock and the issuance price. A company may issue no-par stock to avoid the circumstance that its share price drops below par value and it is owed a liability to shareholders. Imagine a situation where a stock has a par value of $1 and a market value of $0.75. Because the market value is trading below par value, the company has a liability owed to shareholders of $0.25.

Some common stock may also offer dividends, but these are normally at lower rates and are more likely to be foregone if a company has a hard quarter or year. While preferred stocks’ dividends are not guaranteed like bond interest payments, they are much less likely to be waived. 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 open market and constantly fluctuates as investors buy and sell bonds and shares of stock. Stockholders’ equity is most simply calculated as a company’s total assets minus its total liabilities. Another calculation is as the value of the shares held or retained by the company and the earnings that the company keeps minus Treasury shares.

Some states require that companies set a par value below which shares cannot be sold. A bond is essentially a written promise that the amount loaned to the issuer will be repaid. The par value is the amount of money that the issuer promises to repay bondholders at the maturity date of the bond. Most jurisdictions do not allow a company to issue stock below par value. Par value is the value of a bond or share of stock as shown on the bond or stock certificate.

Par Value of Share

Say you purchased a new bond from an issuer with a par value of $1,000—a very common par value for bonds—with a coupon of 4%. But if you bought the same bond on the secondary market for $1,200, your effective interest rate would be 3.33%, rather than 4%. You’d still earn the same $40 in interest—it would simply represent a smaller percentage of what you paid for your bond.

Par Value of Stocks

Book value will often be greater than par value, but lower than market value. The market value of both bonds and stocks is determined by the buying and selling activity of investors in the open market. A bond can be purchased for more or less than its par value, depending on prevailing market sentiment about the security. However, when it reaches its maturity date, the bondholder is paid the par value regardless of if the purchase price. Thus, a bond with a par value of $100 that is purchased for $80 in the secondary market will yield a 25% return at maturity.

Why Par Value Matters for Bond Investors

In other words, it is the nominal share amount ($1, $0.1, or $0.001) mentioned on the stock certificate at the time of issuance. You can usually find top 5 tax breaks for parents getting a degree par values for preferred stocks in their quotes and through your broker-dealer’s research tools. Par value for bonds is available in a prospectus, which is the offering document the company files with the Securities and Exchange Commission (SEC). You can find a company’s prospectus using the SEC’s online EDGAR system or get it from your broker-dealer.

Market value constantly fluctuates with the ups and downs of the markets as investors buy and sell shares. Par value is also called face value, and that is its literal meaning. The entity that issues a financial instrument assigns a par value to it. When shares of stocks and bonds were printed on paper, their par values were printed on the faces of the shares.

A bond can be purchased for more or less than 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. 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.

Stockholders’ equity includes paid-in capital, retained, par value of common stock, and par value of preferred stock. Therefore, shareholders’ equity does not accurately reflect the market value of the company and is less important in the calculation of stockholders’ equity. Par value is the face value of a bond and determines a bond or fixed-income instrument’s maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par, depending on factors such as the level of interest rates and its credit status.

Some companies issue their shares with some nominal par value such as $0.01 per share or less, which is not indicative of the market price of those shares. Companies in other states may issue no-par value stock, which has no such stated value. A stock’s par value never fluctuates and is determined when shares are issued and formally stated on the stock certificate. A bond’s par value is the face value of the bond plus coupon payments, annually or sem-annually, owed to the bondholders by the issuer of the debt. Par value, also known as nominal or original value, is the face value of a bond or the value of a stock certificate, as stated in the corporate charter. Par value is required for a bond or a fixed-income instrument and shows its maturity value and the dollar value of the coupon, or interest, payments due to the bondholder.

For example, as of the end of FY 2023, Apple Inc. (AAPL) had total assets of $352.58 billion and $290.44 billion of total liabilities. The company’s resulting total stockholders’ equity was $62.15 billion. In practice, the issuance of stock at a discount (i.e., below its par value) is not usual because it is legally prohibited in many countries and states. This legal restriction partially explains why companies mostly choose a very low par value for their stock.

When interest rates are higher than the coupon or dividend rate, the price falls. Common-stock par value is shown on the stock certificate and is established by the board of directors at the time the stock is issued. In some states, the par value of common stock issued can’t be withdrawn or used by the issuing company. For this reason, companies often issue common stock with a par value of 1 cent per share or less; in this way, they can avoid tying up excessive amounts of money in stock.