What Is Par Value? Meaning for Stocks and Bonds

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Par value is the nominal amount a company or government assigns to a security when it is issued. On a bond, par value (also called face value or principal) is the amount the issuer promises to repay at maturity, and it is the base on which coupon interest is calculated. On a share of stock, par value is a legal minimum per share written into the corporate charter. It is usually a fraction of a cent and has almost nothing to do with what the shares trade for. The term means the same thing in both markets, but the number does very different work in each.

Par Value of a Bond

When you buy a bond, you are lending money to the issuer. The par value is the size of that loan as the contract defines it: the amount the issuer owes back on the maturity date, whatever price you actually paid.

Common par amounts

There is no single par value for all bonds. Conventions differ by market:

• Corporate bonds are typically issued with a par value of $1,000, although $100 par is also seen.
• Municipal bonds in the U.S. commonly trade in $5,000 denominations.
• Treasury bills are sold at a discount to par in multiples of $100 and pay the full par amount at maturity.

A bondholder with ten corporate bonds of $1,000 par each holds $10,000 in face amount, sometimes called the principal or notional amount of the position.

Calculating the coupon

The coupon rate is applied to par value, never to the market price. The formula is:

Annual coupon payment = Par value × Coupon rate

A bond with $1,000 par and a 4% coupon pays $40 a year. If the bond pays semiannually, as most U.S. corporate and Treasury bonds do, each payment is $20. That $40 does not change if the bond’s market price later falls to $900 or rises to $1,100. What changes is the return the buyer earns relative to the price paid, which is why yield and coupon rate drift apart once a bond starts trading.

Price quoted as a percent of par

Bond dealers and trading screens quote prices as a percentage of par rather than in dollars. This lets bonds with different face amounts be compared on the same scale.

Dollar price = (Quoted price ÷ 100) × Par value

Hypothetical examples:

• A quote of 100 on a $1,000 par bond means a price of $1,000 (trading at par).
• A quote of 98.5 means $985 per $1,000 of par.
• A quote of 102.25 means $1,022.50 per $1,000 of par.

The quote convention treats par as 100, while the actual face amount may be $100, $1,000, $5,000 or another figure set in the bond’s terms.

The same convention is used to estimate the market value of a debt position or of a company’s outstanding debt: multiply the face amount outstanding by the price over par. For a hypothetical issuer with $500 million in bonds outstanding quoted at 96, the market value of that debt is $500 million × 0.96 = $480 million. Quoted prices are usually “clean” prices that exclude accrued interest; a buyer between coupon dates also pays the seller the interest that has built up since the last payment, so the cash paid at settlement can exceed the quoted price.

Premium, discount and trading at par

A bond’s market price moves relative to par mainly because of the gap between its fixed coupon rate and the yield investors currently demand on comparable bonds.

• At par: when the coupon rate equals the market yield, the bond trades at or near 100. A bond priced this way is often called a par bond.
• At a discount (below par): when market yields rise above the coupon rate, the fixed coupon looks less attractive, so the price falls until the bond’s overall return matches what new bonds offer.
• At a premium (above par): when market yields fall below the coupon rate, buyers pay more than par for the higher coupon.

Credit quality pushes prices around too. If investors start to doubt an issuer’s ability to repay, they demand a higher yield and the price drops below par even if rates in general have not moved.

Worked example: one bond, three rate environments

Assume a hypothetical 10-year bond with $1,000 par, a 4% coupon paid annually, and a price equal to the present value of its cash flows discounted at the market yield.

Bond price = C × [1 − (1 + y)^−n] ÷ y + Par ÷ (1 + y)^n

where C is the annual coupon ($40), y is the market yield and n is the number of years to maturity (10).

In every case the bond still pays $40 a year and returns $1,000 at maturity. Only the price changes. The yield that equates a bond’s price with all of its remaining payments, including the return of par, is its yield to maturity, which is the standard way to compare bonds bought at different prices.

What happens at maturity

Par value at maturity is the amount the issuer pays to retire the bond. If you hold a $1,000 par bond until it matures, you receive $1,000 plus the final coupon, whether you bought it at 92 or at 108. This produces a predictable pattern called pull to par: as maturity approaches, a discount bond’s price tends to rise toward par and a premium bond’s price tends to fall toward it, assuming the issuer remains able to pay.

Several bond features change how par shows up:

• Zero-coupon bonds pay no periodic interest. They are sold well below par, and the entire return is the difference between the purchase price and the par amount received at maturity. Treasury bills work the same way over shorter terms.
• Callable bonds let the issuer repay early, at par or at a stated call price above par, on set dates. A bond bought at a premium can be called away before the buyer recovers that premium through coupons.
• Serial bonds, common in municipal finance, are issued as a single offering but mature in installments over many years. Each maturity in the series has its own par amount and its own repayment date, rather than the whole issue coming due at once.
• Inflation-indexed bonds such as U.S. Treasury Inflation-Protected Securities (TIPS) adjust their principal with the Consumer Price Index. The coupon rate is applied to the adjusted principal, so the dollar coupon and the amount repaid change with inflation.

Par value is a promise, not a guarantee. If the issuer defaults, bondholders may recover only part of the face amount through bankruptcy or restructuring.

Par Value of Stock

A share’s par value is set in the company’s articles of incorporation (its charter) and printed on stock certificates where certificates exist. In the U.S., it is governed by the corporate law of the state where the company is incorporated.

Why stock par values are so small

Historically, par value was meant to be the price at which shares were first sold and a floor below which the company could not issue them. That protected early investors from insiders buying shares on preferential terms, and it gave creditors some assurance that a minimum amount of capital had actually been paid in. Shares issued for less than par, known as “watered stock,” could leave shareholders liable for the shortfall.

Companies responded by setting par values so low that the floor almost never binds. Apple’s 10-K filings, for example, list a par value of $0.00001 per share, and Amazon’s list $0.01. Both stocks trade at prices many thousands or millions of times higher. A low par value keeps the legal requirement satisfied while leaving the company free to issue shares at any realistic price, and it minimizes any exposure tied to issuing below par.

Why companies still set a par value

The reasons are mostly legal and administrative:

1. Statutory requirements. Some jurisdictions require or historically required a par value for shares, or tie certain filing fees and franchise taxes to it.
2. Legal capital and creditor protection. In states that use the concept, the aggregate par value of issued shares forms “legal capital,” an amount that generally cannot be paid out as dividends. This keeps a minimum cushion inside the company for creditors.
3. Accounting presentation. Par value splits contributed capital into two lines on the balance sheet, showing how much was paid at the nominal amount and how much above it.
4. A formal signal. A stated par value shows the shares were issued under a defined legal framework, though it carries little economic weight.

No-par and stated-value stock

Many states allow companies to issue no-par stock, which has no minimum issue price written into the charter. Certificates for such shares are typically marked “no par value.” Without a par value, the company avoids tracking the split between par and amounts paid above it, and the whole issue price goes into one equity account.

Some companies issuing no-par shares assign a stated value by board resolution. It works like par value for accounting purposes, but it is set by the board rather than written into the charter.

Par value of preferred stock

Preferred stock is the main case where a share’s par value still drives cash flows. Preferred dividends are often expressed as a percentage of par: a hypothetical preferred share with $25 par and a 6% dividend rate pays $1.50 a year. The liquidation preference, the amount preferred holders are entitled to before common shareholders if the company is wound up, is also frequently set at par. For preferred stock, par behaves more like a bond’s face value than like a common stock’s nominal figure.

Splits and changes to par

Par value per share can change through corporate actions. In a forward stock split, a company commonly reduces par per share in proportion (a 2-for-1 split can turn $0.02 par into $0.01), so total par across all shares stays the same. Companies can also amend their charter to change par value or eliminate it, subject to shareholder approval and state law.

Par Value in Accounting

Recording stock issuance

When a company sells par value shares, the proceeds are split between two equity accounts:

• Common stock is credited with the number of shares × par value.
• Additional paid-in capital (APIC) is credited with everything received above par.

Hypothetical example: a company issues 1,000,000 shares with $0.01 par at $20 per share, raising $20,000,000.

• Cash: debit $20,000,000
• Common stock: credit $10,000 (1,000,000 × $0.01)
• Additional paid-in capital: credit $19,990,000

Total shareholders’ equity rises by $20,000,000 either way. The split only shows where the capital came from. With no-par stock that has no stated value, the full $20,000,000 typically goes to the common stock account.

Recording bonds issued away from par

On the issuer’s side, bonds are carried relative to their par value. If a company issues $1,000,000 of bonds at 95, it receives $950,000 and records the bonds payable at $1,000,000 par less a $50,000 discount. Over the life of the bond, the discount is amortized as additional interest expense, so the carrying amount rises to $1,000,000 by maturity, the amount actually owed. A premium works in reverse, lowering interest expense over time.

Par Value vs. Market Value vs. Book Value

These three measures are often confused because each can be quoted per share or per bond.

• Par value is set by the issuer at issuance. For a bond it defines repayment and coupons; for common stock it is a legal minimum with little economic meaning.
• Market value is the price at which the security trades now. It moves with interest rates, credit risk, supply and demand and investor sentiment. For stocks it reflects expectations about the business; for bonds, how the fixed coupon and par repayment compare with current yields.
• Book value is the accounting value of equity (assets minus liabilities), often expressed per share. It includes par value and APIC but also retained earnings and other items, so it is far larger than aggregate par for most established companies.

Funds add another figure: net asset value, the per-share value of a fund’s holdings minus liabilities. It is based on the market prices of the bonds a fund holds, not their face amounts.

Limitations of Par Value

Par value is precise about contractual amounts and silent about almost everything else:

• It says nothing about a stock’s worth. Comparing two companies’ par values tells you only how their charters were drafted.
• It is not the bond’s return. Two bonds with $1,000 par can offer very different returns depending on price, coupon and time to maturity.
• It can change. Amortizing bonds repay principal over time, and inflation indexing, early calls, stock splits and charter amendments can also alter it.
• Its legal role varies. Whether par value creates legal capital, limits dividends or affects fees depends on the jurisdiction where the company is incorporated, and many places have reduced or removed the concept.

FAQs

The Bottom Line

Par value matters most to bond investors, who receive the face amount at maturity and earn coupons calculated on it, regardless of the price they paid. For common stock investors, par is a charter formality that says nothing about what shares are worth. Judge a bond's return by its yield to maturity, and judge a stock by market and book value rather than par.