Par Value

Par Value of a Bond

For a bond, par value is the principal. Investor.gov states that if bonds are held to maturity, bondholders get back the entire principal, and that if bonds are held to maturity the investor will receive the face value, plus interest. It states that if a bond is sold before maturity, the bond may be worth more or less than the face value.

The coupon rate is applied to face value. The SEC's investor bulletin states that the interest rate on a bond is called the coupon rate. In its comparison of three bonds with a 10-year maturity and a 4.00 percent coupon rate, the bulletin states that the bond will pay 4 percent of the face value, or forty dollars per year, on a face value of one thousand dollars, and a principal payment of one thousand dollars at the end of the 10 years.

The SEC's bulletin also describes a five-year zero-coupon bond with a face value of one thousand dollars. It states that the bond pays one thousand dollars, equal to the purchase price of eight hundred dollars plus interest, or original issue discount, of two hundred dollars.

Investor.gov states that Treasury Inflation-Protected Securities are notes and bonds whose principal is adjusted based on changes in the Consumer Price Index.

How a Bond's Price Compares With Par

A bond's price and its par value are separate figures. The SEC's bulletin states that bond prices may be quoted in dollars or as a percentage of face value, and that a bond often trades at a premium or discount to its face value. It states that this can happen when market interest rates rise or fall relative to the bond's coupon rate, and that if the coupon rate is higher than market interest rates, the bond will likely trade at a premium.

The bulletin applies this to three bonds that share the same 10-year maturity and 4.00 percent coupon rate. It states that Bond A's price is 100 percent of the face value, or one thousand dollars, and that the bond is not trading at either a premium or a discount. It states that Bond B's price is 90 percent of its face value, or nine hundred dollars, and that bondholders will still receive the face value of one thousand dollars at maturity. It states that Bond C sells for a premium at one thousand one hundred dollars, or 110 percent of face value. The bulletin states that the discounted price results in Bond B having a yield to maturity of 5.31 percent, and that because of the premium price, the yield to maturity on Bond C, at 2.84 percent, is lower than the coupon rate.

FINRA states how the comparison affects return. A bond's price compared with par value helps determine the rate of return. A bond trading at a premium, which means above par, offers a return lower than the coupon, which is the stated interest rate, while a bond trading at a discount, which means below par, provides a return above that rate.

FINRA also states that a bond's market value can be above or below par value, based on interest rate levels, the perceived financial health of the issuer, and supply versus demand.

The SEC's bulletin adds a point about holders who keep a bond to maturity: if you hold the bond until maturity, you will receive its face value upon maturity, subject to default risk.

Early Redemption of a Bond

A bond can be retired before its maturity date. Investor.gov describes call risk as the possibility that a bond issuer retires a bond before its maturity date. The SEC's bulletin states that the terms of some bonds give the company the right to buy back the bond before the maturity date, and that if the company calls the bond, it will pay back the principal and possibly an additional premium depending on when the call occurs.

Par Value of Stock

FINRA states that for common stocks par value is mainly a legal and accounting concept that is unrelated to the stock's trading price. The Delaware General Corporation Law shows how one state's statute treats the concept.

Section 102(a)(4) of the Delaware General Corporation Law governs what the certificate of incorporation must say. If the corporation is to be authorized to issue only one class of stock, the certificate states the total number of shares and the par value of each, or a statement that all the shares are to be without par value. If the corporation is to be authorized to issue more than one class, the certificate sets forth the total number of shares of all classes and the number of shares of each class, and specifies each class whose shares are to be without par value and each class whose shares are to have par value, together with the par value of the shares of each such class.

Section 153 governs the consideration for shares. Under Section 153(a), shares of stock with par value may be issued for consideration having a value not less than the par value of the shares issued. Under Section 153(b), shares without par value may be issued for the consideration determined in accordance with Section 152, or by the stockholders if the certificate of incorporation so provides. Section 153(c) provides that the consideration received for treasury shares may have a value greater or less than, or equal to, the par value, if any, of those shares, and may consist of cash, any tangible or intangible property or any benefit to the corporation, or any combination of them.

Capital, Surplus and Par Value

Section 154 of the Delaware statute connects par value to the corporation's capital. It provides that a corporation may, by resolution of its board of directors, determine that only a part of the consideration received for shares is capital. Where some of the shares issued have par value, the part determined to be capital must be in excess of the aggregate par value of those shares. Where all the shares issued are shares having par value, the part determined to be capital need be only equal to the aggregate par value of the shares. The board specifies in dollars the part that is capital.

If the board has not made the determination at the time of issue of shares issued for cash, or within 60 days after the issue of shares issued for consideration other than cash, the capital in respect of the shares is an amount equal to the aggregate par value of shares having par value, plus the amount of the consideration for shares without par value. The amount of consideration determined to be capital for shares without par value is the stated capital of those shares.

Section 154 then defines surplus. The excess, if any, at any given time, of the net assets of the corporation over the amount determined to be capital is surplus. Net assets means the amount by which total assets exceed total liabilities, and capital and surplus are not liabilities for this purpose.

Par Value, Market Value and Book Value

FINRA's investor education material separates par value from two other figures. It describes book value, when talking about stocks, as the accounting value of a company: total assets minus total liabilities. It states that investors trying to identify undervalued stocks often look at the price-to-book ratio, which is the current stock price per share divided by the book value per share. It states that book value is less meaningful for companies with valuable brands or intellectual property, because these intangible assets are often excluded from the calculation.

FINRA treats market value separately. It states that for bonds, market value can be above or below par value, and that for common stocks par value is unrelated to the trading price. Par value is the face value set by the issuer, and book value is the accounting value of the company, which FINRA defines as total assets minus total liabilities.

Par Value in FINRA's Examination Outline

FINRA's Securities Industry Essentials examination content outline carries a 2025 copyright. Under Section 2, Understanding Products and Their Risks, the debt instruments topic lists par value among the items to know, alongside varying maturities, income such as interest, coupon value, yield, ratings and rating agencies, callable and convertible features, short-term versus long-term characteristics, and the relationship between price and interest rate. Candidates should check the current outline before the examination.

Common Misunderstandings

One misunderstanding is that par value is the price an investor pays for a bond. Par value is the amount that the bondholder receives at maturity. The SEC's bulletin states that a bond often trades at a premium or discount to its face value, and that price may be quoted as a percentage of face value.

A second misunderstanding is that par value is what a stock is worth. FINRA states that for common stocks par value is mainly a legal and accounting concept that is unrelated to the stock's trading price.

A third misunderstanding is that a bond selling above par pays a return equal to its coupon. FINRA states that a bond trading at a premium offers a return lower than the coupon.

A fourth misunderstanding is that a bond selling below par returns only its coupon. FINRA states that a bond trading at a discount provides a return above the coupon rate.

A fifth misunderstanding is that par value and face value are different figures. Investor.gov refers to the principal as also known as face value or par value, and FINRA describes par value as the face value of a security.

A sixth misunderstanding is that a bond sold before maturity returns par value. Investor.gov states that if sold before maturity, the bond may be worth more or less than the face value.

A seventh misunderstanding is that par value and book value are the same. FINRA describes book value as total assets minus total liabilities, and par value as the face value set by the issuer.

An eighth misunderstanding is that stock without par value has no capital. Section 154 of the Delaware statute provides that the amount of consideration determined to be capital for shares without par value is the stated capital of those shares.

A ninth misunderstanding is that every share must be issued at its par value or more. Section 153(a) applies that requirement to shares with par value, while Section 153(b) allows shares without par value to be issued for the consideration determined under Section 152, and Section 153(c) allows treasury shares to be disposed of for consideration greater or less than, or equal to, par.

A tenth misunderstanding is that a bond's principal never changes. Investor.gov states that the principal of Treasury Inflation-Protected Securities is adjusted based on changes in the Consumer Price Index.

Key Points

Par value is the face value of a security set by the issuer. For a bond it is the amount the bondholder receives at maturity, and Investor.gov calls the same figure principal, face value or par value.

A bond's price is separate from its par value. The SEC's bulletin states that bonds often trade at a premium or discount to face value, and that price may be quoted as a percentage of face value.

FINRA states that a bond at a premium offers a return lower than its coupon and a bond at a discount provides a return above it.

For common stock, FINRA states that par value is mainly a legal and accounting concept that is unrelated to the trading price.

Under the Delaware statute, the certificate of incorporation states the par value of each class or that its shares are without par value, shares with par value may not be issued for consideration of less than par value, and the board determines how much of the consideration is capital.

FINRA's outline for the Securities Industry Essentials examination lists par value among the items to know for debt instruments.