Par Value
What Is Par Value?
Par value is the face value of a bond or other financial security, representing the amount the issuer agrees to repay the investor when the bond matures. For most bonds, the par value is $1,000, though other amounts may be used.
Par value is also used in accounting and stock issuance, though its meaning varies depending on the financial instrument.
Why It Matters
Par value determines how much the issuer must repay when the bond matures. It also helps calculate interest payments because coupon rates are applied to the bond’s par value.
Understanding par value helps investors evaluate bond pricing and yields.
How Par Value Works
When bonds are issued, they are typically sold at:
- par value (face value)
- premium (above par)
- discount (below par)
Interest payments are calculated based on the bond’s par value regardless of the market price.
Example
A bond with a $1,000 par value and a 5% coupon rate pays $50 annually in interest.
Par Value vs Market Value
- Par value is the amount repaid at maturity.
- Market value is the price investors pay to buy the bond in the secondary market.
FAQs About Par Value
Does par value change over time?
No, it remains fixed for the life of the bond.
Can bonds trade above par value?
Yes, especially when interest rates fall.
Why do investors care about par value?
It determines interest payments and maturity repayment.
Related Terms
