Face value definition: Face value is a financial phrase that refers to a security’s nominal or cash value as indicated by its issuer.
The face value of a stock is the stock’s original cost, as shown on the certificate.
It is the amount paid to the bondholder at maturity, usually in $1,000 increments.
“Par value” or simply “par” is a term used to describe the face value of bonds.
Points to Remember:
• The nominal or dollar worth of a security is described by its face value, which is stated by the issuing party.
• A bond’s face value is the dollar amount due to be paid to the investor once the bond reaches maturity; a stock’s face value is the initial cost of the stock, as indicated on the certificate of the stock in question; and a stock’s face value is the initial cost of the stock, as indicated on the certificate of the stock in question.
• Because there are numerous other influencing elements at play, such as supply and demand, the actual market value of a stock or a bond is not dependably determined by its face value.
What is face value? Define It
Face value (par value) refers to the amount paid to a bondholder at the maturity date, assuming the bond issuer does not default.
Bonds sold on the secondary market, on the other hand, vary with interest rates.
If interest rates are higher than the coupon rate on a bond, for example, the bond is offered at a discount (below par).
When interest rates are lower than the coupon rate on a bond, the bond is sold at a premium (above par).
While a bond’s face value guarantees a return, the face value of a stock is usually a poor reflection of its true worth.
Bonds and their Face Value
The face value of a bond is the amount paid by the issuer to the bondholder when the bond reaches maturity.
A bond’s profit may be based merely on the difference between the original issue price and the face value at maturity, or it may have an additional interest rate.
Stock Shares and Face Value
The legal capital a corporation is required to maintain is determined by the total face value of all of its stock shares.
Only the above-and-beyond money, in the form of dividends, may be distributed to investors.
The funds that cover the face value act as a kind of default reserve.
However, there is no obligation that businesses declare the face value at the time of issue.
This allows firms to establish the size of the reserve using very low figures.
AT&T shares, for example, have a par value of $1 per common share, whereas Apple Inc. shares have a par value of $0.00001.12 per common share.
What is the difference between face value and market value?
The actual market value of a stock or bond is decided by supply and demand rules, which are often defined by the dollar number at which investors are prepared to purchase and sell a particular instrument at a specific point in time.
In truth, the face value and market value may have minimal association depending on market conditions.
Interest rates (as compared to the bond’s coupon rate) can impact whether a bond sells at or below par in the bond market.
Zero-coupon bonds, or those in which investors receive no interest other than the cost of purchasing the bond below face value, are often only sold below par because it is the only option for an investor to profit.
Is Face Value and Par Value the Same Thing?
Yes. The face value of a financial instrument is the amount of money it is worth when it is first issued.
The face value of a bond is the price paid by the issuer when the bond matures, also known as “par value.”
The face value of a stock, on the other hand, is the price set by the issuer when the stock is first issued.
What Is the Distinction Between Face and Market Value?
While a stock’s face value is determined by the issuer, market value is determined by external supply and demand forces.
The price that the market will bear is known as market value, and it might range dramatically from a stock’s initial price.
Apple shares, for example, have a face value of $0.00001, yet their market value can range above $100.
What’s the Difference Between the Face Value and the Price of a Bond?
The face value of a bond is fixed, and most bonds are issued in $1,000 denominations.
Its price, on the other hand, changes in response to market interest rates, time to maturity, and the credit rating of the issuer.
Based on these factors, a bond may be priced above or below par.
If interest rates rise, bond prices will fall, and they will trade in the secondary market at a discount to face value.
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