Par Value
- The stated or face value of a stock or bond. It has little significance for common stocks, however, for bonds it specifies the payment amount at maturity.
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Par value is the face value, or named value, of a stock or bond.
With stocks, the par value, which is frequently set at $1, is used as an accounting device but has no relationship to the actual market value of the stock.
But with bonds, par value, usually $1,000, is the amount you pay to purchase at issue and the amount you receive when the bond is redeemed at maturity.
Par is also the basis on which the interest you earn on a bond is figured. For example, if you are earning 6% annual interest on a bond with a par value of $1,000, that means you receive 6% of $1,000, or $60.
While the par value of a bond typically remains constant for its term, its market value does not. That is, a bond may trade at a premium, or more than par, or at a discount, which is less than par, in the secondary market.
The market price is based on changes in the interest rate, the bond's rating, or other factors.
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