Par Value: What is it?

If you trade securities, you've come across the term par value.

Par value usually refers to the value of a bond when it's issued. Say a bond is issued at $90, then trades to $100. The par value is still $90, even though the bond's value on the market increased. Par value can also show the value of a stock at the moment the company created its founding document, the company charter.

Par can also refer to two currencies that have the same value. For example, if the Euro was equal to one dollar, the Euro would be "at par" with the dollar. While this is an acceptable meaning of par, the phrase "par value" is used in relation to securities and not currencies.

Why is Par Value Important?

Bonds change price daily. The par value of a bond shows an investor how much they will receive if they buy a bond and hold it until maturity. Maturity means the date when the borrower needs to repay the money. For example, a bond with a 10-year maturity period issued on September 1, 2016 must be repaid 10 years later.

When you compare the par value to the asking price for a bond, you can calculate how much you will earn at bond repayment. For example, a bond might have a par value of $10,000 and a 10-year maturity period. This bond would pay 5 percent interest every year or $500, plus $10,000 at the end of 10 years.

Companies dislike using par value with stocks. Many set no or very low par value for their stock. After all, if a stock price falls to $0.60 a share and the par value in the charter is $0.75, the company owes investors $0.15 per share.