Par value is the face or nominal value assigned to a stock or bond, mainly used for legal, accounting, and pricing purposes.
Understanding Par Value in Simple Terms
Par value sounds technical, but the idea is actually pretty simple. Par value is the stated value of a stock or bond when it’s first issued. You can think of it as a “reference number” printed on the security.
For bonds, par value is especially important. It’s the amount the bond issuer promises to pay back to the investor when the bond matures. For stocks, par value exists mostly for legal reasons and usually has little connection to the stock’s real market price.
So while par value shows up in official documents, it doesn’t always reflect what an investment is actually worth today.
Par Value in Bonds: Why It Matters
When it comes to bonds, par value plays a major role. Most bonds have a par value of $1,000, although some may use different amounts.
Here’s why par value matters for bonds:
-
It’s the amount you get back at maturity
-
Interest payments are usually based on it
-
Bond prices are often quoted as a percentage of par value
For example, if a bond has a par value of $1,000 and a 5% interest rate, the bond pays $50 in interest each year. If the bond is trading at 100, that means it’s priced at its par value. If it’s trading at 95, it costs $950. If it’s at 105, it costs $1,050.
Even if you buy a bond for more or less than par value, the issuer still repays the full par value at maturity.
Par Value in Stocks: Mostly a Formality
Par value works very differently for stocks. For most modern companies, par value has little practical meaning.
Stock par value is usually set extremely low, such as $0.01 or even $0.001 per share. It doesn’t represent what the stock is worth in the market. Instead, it exists mainly to meet legal or regulatory requirements.
For example, a company may issue stock with a par value of $0.01, but the stock could trade at $50 or $200 on the stock market. The market price is driven by supply, demand, company performance, and investor expectations — not par value.
Why Companies Use Par Value at All
You might wonder why par value still exists if it’s not very useful for stocks. The main reasons are legal and accounting-related.
Par value helps define:
-
The minimum price a company can issue shares for
-
How much capital is officially recorded on the balance sheet
-
Certain shareholder rights in some jurisdictions
In the past, par value played a bigger role in protecting investors. Today, it’s mostly a formality, especially for common stock.
Real-Life Example to Make It Clear
Imagine two investments:
First, you buy a bond with a par value of $1,000. You pay $980 for it because interest rates have gone up. Even though you paid less, the company will still return $1,000 to you when the bond matures.
Second, you buy a stock with a par value of $0.01. You pay $75 per share on the stock market. That $0.01 doesn’t affect your investment’s value at all — it’s just a technical detail in the company’s paperwork.
These examples show how par value matters a lot for bonds but very little for stocks.
Par Value vs Market Value
One common mistake is confusing par value with market value. They are not the same.
Par value is fixed and set when the security is issued. Market value changes constantly based on what investors are willing to pay. A bond or stock can trade above, below, or exactly at par value depending on market conditions.
Understanding this difference helps you avoid misunderstandings when reading financial news or investment statements.
Final Thoughts
Par value is the nominal or face value of a stock or bond, but its importance depends on the type of investment. For bonds, par value affects interest payments and maturity value. For stocks, it’s mostly a legal placeholder with little real-world impact.
Knowing what par value means can help you better understand how investments are structured and why prices move the way they do — even if that small number on paper doesn’t always tell the whole story.
Want to explore something else? Here’s another article you might enjoy:
