Par Value: What It Means for Stocks and Bonds

Key takeaways
* Par value (also called face or nominal value) is the stated value of a bond or stock when issued.
* For bonds, par value defines the amount repaid at maturity and is used to calculate coupon payments.
* For stocks, par value is typically nominal or zero and is often unrelated to market price.
* Par value affects legal capital and equity presentation in accounting but usually has little economic relevance for modern stocks.

What is par value?
Par value is the stated or face value assigned to a financial instrument at issuance. For bonds, it represents the maturity amount the issuer promises to repay and the base for calculating coupon (interest) payments. For shares, par value is the minimum legal capital per share recorded in the corporate charter or on the stock certificate; many shares today are issued with a very small par value or no par value at all.

Par value of bonds
* Definition: The amount the issuer agrees to pay the bondholder at maturity.
* Typical amounts: Common corporate par values are $1,000 or $100; municipal bonds often have par values of $5,000. Treasury bills are sold at a discount to par in multiples of $100.
* Coupon relationship: Coupon payments = coupon rate × par value. Example: A $1,000 bond with a 4% coupon pays $40 per year.
* Price vs. par: A bond trades at a premium if its market price is above par and at a discount if below par. Market interest rates determine whether a bond trades above, at, or below par:
* If market rates = coupon rate → bond trades at par.
* If market rates rise above the coupon → bond trades below par.
* If market rates fall below the coupon → bond trades above par.

Par value of stocks
* Definition: The nominal value per share stated in a company’s charter or on a stock certificate.
* Practical use: Most companies set par value at a minimal amount (e.g., $0.00001 for some large firms) or issue no-par stock to avoid legal and accounting complexities.
* Purpose: Par value establishes a legal floor for share issuance in some jurisdictions but is usually detached from the market price of the stock.
* Finding par value: It appears in the Shareholders’ Equity section of the balance sheet under common stock.

Why companies set par value
1. Legal compliance — Some jurisdictions require a par value to ensure a minimum stated capital.
2. Creditor protection — Par value can create a base of legal capital that offers limited protection to creditors by restricting distributions.
3. Investor perception — A stated par value may signal formal compliance with corporate requirements.
4. Accounting clarity — Separates nominal share value (recorded in common stock) from amounts paid above par (recorded as additional paid-in capital).

Par value vs. market value
* Par value is fixed at issuance; market value is the current trading price that fluctuates with supply and demand, economic conditions, interest rates, and investor sentiment.
* For stocks, market value almost always differs from par value; par is mainly an accounting/legal figure.
* For bonds, market price relative to par reflects changes in interest rates and issuer credit risk.

Accounting implications
* When shares are issued:
* Par value × number of shares is recorded in the common stock account.
* Any excess paid by investors is recorded as additional paid-in capital (APIC).
* Example: If a $1 par share sells for $5, $1 goes to common stock and $4 goes to APIC.
* No-par stock: Proceeds are typically recorded entirely to the common stock account, simplifying equity presentation. Par value influences legal capital rules in some jurisdictions.

Common questions
* What is par value at maturity? — For a bond, it’s the principal amount the issuer repays the bondholder on the maturity date (e.g., $1,000).
* What does no-par value mean? — The stock has no legally stated minimum per-share price; its value is determined solely by the market.
* Are bonds always issued at par? — No. Bonds may be issued at a premium or discount depending on market interest rates at issuance.
* How does coupon rate relate to par value? — The coupon rate is applied to par value to calculate periodic interest payments; the relation between coupon and market interest rates determines whether a bond trades above, at, or below par.
* Is par value required? — Some jurisdictions require a par value for securities; others allow no-par stock.

Conclusion
Par value is a foundational accounting and legal concept: for bonds it determines repayment at maturity and coupon amounts; for stocks it provides a nominal legal floor used in equity reporting. In modern markets, par value rarely reflects economic value—market price, interest rates, and issuer creditworthiness drive actual valuation.