Par Value vs Face Value
Face value and par value are investment terms that are related to bonds and stocks; initial offerings are made available at par value of the face value to make them look attractive after listing, and the stocks mostly open at a rate higher than the face value bringing profits for the investor. Par value and Face value are two concepts that confuse many, and there is no dearth of people thinking of them to be synonyms, which is not correct. This article will take a closer look and explain these concepts and what to make out of these words in a given context.
Bonds and shares issued in the market are having a face value. When they are introduced, shares have a face value or par value that is the same as that shown on the face of the share. New Fund Offer is made to public at a value that is at par or a value that is slightly more than its face value depending upon the past performance of the company and its track record. Many a times par value is a value that is determined in an arbitrary fashion. In UK, and in many other countries, par value is considered important, and a stock or bond cannot be introduced at less than its face value. When face value and par value are equal, it is said that the stock of this face value is available at par. At times, this par value is suddenly increased by the company introducing the shares, anticipating the stock to get a great opening when it is listed in the market.
Bonds usually have a maturity value of $1000. If you get it at a discount it is said that the bond is available at less than face value. If the interest rates of the bond in the secondary market are higher than that printed on the bond, then the bond is sold at par, meaning at less than its face value. On the other hand, if the interest rates offered in the secondary market on the same bond are lower than that printed on the bond, the bond is sold at a premium, which is above its par value.
What is the difference between Par Value and Face Value?
• Par value of a bond is, in reality, equal to its face value.
• In case of new shares being offered, pricing is done in such a manner that shares are offered at par (equal to face value printed on the share). This is attractive for potential customers as invariably shares open at a higher price than face value when they get a listing at the share market.