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Understanding the Difference Between Par Value and Market Value

12 Sep 2023

Par value is sometimes known as face value, which is the literal meaning of the term. A financial instrument's par value is determined by the institution that issues it. The par values of stocks and bonds were printed on the faces of the shares when they were printed on paper.

Market value, on the other hand, is the current price at which a financial instrument can be traded on the stock market. As investors purchase and sell shares, market value swings constantly with the ups and downs of the markets.

The par value of a bond is very important to the average investor, whereas the par value of a stock is a bit of an anachronism.

  • Par Value

When a company or government issues a bond, the par value indicates how much money the bond will be worth when it matures.

The majority of private investors purchase bonds as a safe haven investment. The yield is paid in increments until the bond expires, giving income. The investor then receives his or her initial money back. To put it another way, they want to keep the bond until it matures.

  • Market Value

When it comes to equities, it's the market value that counts, not the par value. When most stocks are issued, they are given a par value. The par value assigned in modern times is a little sum, such as one penny. This eliminates any legal ramifications if the stock falls below its par value. Depending on state legislation, some stocks are issued with no par value.

The stock market determines a stock's true worth, which fluctuates throughout the trading day as shares are purchased and sold.

  • What Is the Difference Between Par Value and Market Value?

The market value of stocks, in particular, is what matters to stock traders. Par value is important for long-term bondholders since it is the face amount of each bond that will be repaid as principal when the bond matures, regardless of the market price at the time.

  • Is Par Value and Book Value the Same Thing?

No. The net value of a company's assets, as shown on its balance sheet, is roughly equivalent to the total amount all shareholders would get if the company were liquidated. The book value is usually higher than the par value, but lower than the market value.

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