Par value

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Par value, in finance, means stated value or face value. From this comes the expressions at par (at the par value), over par (over par value) and under par (under par value).

The term "par value" has several meanings depending on context and geography.

1 Stock
2 Bonds
3 Currency
4 References

[edit] Stock

Par value of an equity (a stock) is a somewhat archaic concept. The par value of a stock was the share price upon initial offering; the issuing company promised not to issue further shares below par value, so investors could be confident that no one else was receiving a more favorable issue price. This was far more important in unregulated equity markets than in the regulated markets that exist today.

Most common stocks issued today do not have par values; those that do (usually only in jurisdictions where par values are required by law) have extremely low par values (often the smallest unit of currency commonly used), for example a penny par value on a stock issued at USD$25/share.

No-par stocks have no par value printed on its certificates. Instead of par value, some U.S. states allow no-par stocks to have a stated value, set by the board of directors of the corporation, which serves the same purpose as par value in setting the minimum legal capital that the corporation must have after paying any dividends or buying back its stock.

Preferred stock par value remains relevant, and tends to reflect issue price. Dividends on preferred stocks are calculated as a percentage of par value.

Also, par value still matters for a callable common stock: the call price is usually either par value or a small fixed percentage over par value.

In the United States, it is legal for a corporation to issue "watered" shares below par value. However, the purchasers of "watered" shares incur an accounting liability to the corporation for the difference between the par value and the price they paid. Today, in many jurisdictions, par values are no longer required for common stocks.

[edit] Bonds

In the U.S. bond markets, par value is when the price dollars is equal to the face value. A Treasury note is denominated in units of $1,000, but has its price quoted by common convention in terms of moving the decimal point to the left by one position. A Treasury note selling at par value would thus be quoted as 100:00, where the two digits to the right of the colon are priced in thirty-seconds (1/32) of a dollar (0.03125 dollars.) A par value price of 100:00 would thus equate to a price of a note or bond selling at face value of $1000 per Treasury note. A price of 75:31, on the other hand, would thus equate to a note or bond quoted at a price of (75 + 31/32) x 10, or $759.6875, selling at an obvious discount from its par value of 100:00 for a face value paid upon maturity of the note or bond of $1,000.

Only the market for Treasury securities still prices using thirty-seconds of a dollar. All other markets use decimal notation.

The practice of pricing in price per hundreds largely grew out of the practice of pricing British government bonds, which were (and still are today) denominated in units of 100 Pounds Sterling. These notes, originally sold in physical form having gilt-edges and therefore known as "Gilts", are priced in similar form as US debt instruments, but are priced relative to their face value of 100 pounds Sterling. There is no subsequent shift of the decimal point applied in the pricing of such debt instruments as in the US. In the United Kingdom bond markets, par value is when the price per 100 Pounds Sterling note or bond is equal to the face value.

A par value of 100.00 for a note or bond means only that the note or bond is selling for the face value paid upon maturity of the note or bond. It can (and does) have different absolute values per Note or Bond depending on the conventions of the particular market and country in which such a par value is quoted.

[edit] Currency

The term "at par" is also used when two currencies are exchanged at equal value (for instance, in 1964, Trinidad and Tobago switched from British West Indies dollar to the new Trinidad and Tobago dollar, and that switch was "at par", meaning that the Central Bank of Trinidad and Tobago replaced each old dollar with a new).