Investing for Beginners , investing

Par value also is called face value or nominal value, and is a nominal amount of money that shows how much of money is related to the security nominally. Par value is used most commonly for two types of securities and to explain it better we should look into par value separately:

Par value for shares isn’t very important attribute (it is important only for preferred shares). It may be more important only when there are more classes of shares issued with different par value. If there is only one class of share then par value isn’t very important and do not have any influence to the market value. The par value is determined during issuance and depends on amount of capital that was attracted during creation of the company for each share; this means that par value is important only until the company is new but after many years of experience the importance of par value decreases to insignificant. Par value of shares can be changed during stock split or reverse stock split. Some stocks doesn’t have par value at all.

Par value for bonds is much more important than for the stocks, actually par value is the most important characteristic for the bond. Par value of the bond is a real value of the bond at which the bond should be redeemed when bond matures. In simple words, if an investor holds a bond that has par value of $1000 and the maturity of the bond is one year, then after one year investor should receive $1000 from the bond issuer (also during the period he should get interests if bond wasn’t discounted).