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Par Value vs. Market Value: An Overview
There are different types of value in the financial world. Two of the most common are par value and market value. Both represent an asset’s monetary worth. But they are inherently different.
A par value is the face or nominal value of an asset. The issuing entity assigns a par value to it. When shares of stocks and bonds were printed on paper, their par values were printed on the faces of the shares. A market value is the actual price that a financial instrument is worth at any given time. It fluctuates with market swings as investors buy and sell shares.
Key Takeaways
- A par value and market value are used to describe the monetary or assessed worth of an asset.
- Par values represent the face value or original price of an asset.
- An asset’s market value indicates how much someone is willing to pay for it at a specific time.
- Par values are important for bond investors because they represent the principal amount.
- Market values are common for stocks, whose prices change throughout a trading session.
Par Value
The term par value is the stated value of an asset—typically of a bond or stock. It is interchangeable with face value or nominal value, or the written value on a bond or stock certificate. Put simply, it is the original value of the asset.
Par Values for Bonds
Most individual investors buy bonds because they are considered to be safe-haven investments. When a bond is issued, its par value represents its worth when it matures. The yield is paid in regular installments, providing income until the bond matures. The investor then gets the original investment back. In other words, they intend to hold on to the bond until it matures.
Let’s assume that Company X issues bonds with a par value of $100 with a maturity date of one year. Once the year is up, the bondholder is entitled to collect $100 from the issuer in addition to whatever interest payments the bond yields.
A bond can be purchased for more or less than its par value, depending on prevailing market sentiment about the security. When it reaches its maturity date, the bondholder is paid the par value regardless of the purchase price. Thus, a bond with a par value of $100 purchased for $80 in the secondary market will yield a 25% return at maturity.
Par Values for Stocks
The par value for company shares is typically listed on the stock certificate. This is normally stated in the corporate charter. Unlike bonds, a stock share’s face value is unrelated to what is stated in the charter. Shares frequently have a par value near zero because most new companies are established with a limited number of authorized shares.
This means the market value is nearly always higher than par. Rather than looking to purchase shares below par value, investors make money on the changing value of a stock over time. This is based on company performance and investor sentiment.
Fast Fact
Bonds are not necessarily issued at their par value. They could also be issued at a premium or at a discount depending on factors like the level of interest rates in the economy.
Market Value
As noted above, the term market value refers to the amount that an asset is worth at any given time. Put simply, it’s the amount that people will pay for an asset on the open market. For instance, an asset may cost $10 one year ago but may fetch $20 a year later. Market value tends to fluctuate based on investor sentiment, the economy, market conditions, or a combination of any of these.
Market Values for Bonds
The market value of bonds is determined by the buying and selling activity of investors in the open market. This value matters for bonds only if it is traded in the secondary market rather than being held.
Before its maturity date, the market value of the bond fluctuates in the secondary market, as bond traders chase issues that offer a better return. However, when the bond reaches its maturity date, its market value will be the same as its par value.
Market Value for Stocks
The market value of stocks is what matters—not their par value. Most stocks are assigned a par value when they are issued. The par value assigned is generally a minimal amount, such as one penny. This avoids any potential legal liability if the stock drops below its par value.
Some stocks are issued with no par, depending on state laws. But, it’s the stock market that determines the stock’s real value, which continually shifts as shares are bought and sold throughout the trading session.
Par Value, Market Value, and Stockholders’ Equity
Stockholders’ equity is the book value of a company. It is calculated as a company’s total assets minus its total liabilities. It can also be determined as the value of shares held or retained by the company and the earnings the company keeps minus Treasury shares.
This figure is recorded on a company’s balance sheet. But, it does not accurately reflect the company’s market value. That’s because shareholders’ equity includes paid-in capital retained along with the par value of common and preferred stock. The values signify the par value of a stock at the time of the transaction—not their fair market values (FMV).
The value of common stock is calculated by multiplying the number of shares the company issues by the par value per share. To determine the value of the preferred stock, multiply the number of preferred shares issued by the par value per share.
Fast Fact
The par value of a bond is relevant to the average investor, while the par value of a stock is something of an anachronism. Par value for a share refers to the nominal stock value stated in the corporate charter. Shares can have no par value or very low par value, such as a fraction of one cent per share.
Par Value vs. Market Value Example
Apple (AAPL) had total assets of $364.98 billion and $308.03 billion of total liabilities at the end of fiscal year 2024. The company’s resulting total stockholders’ equity was $56.95 billion. However, its equity par value was roughly $83,28 billion. This is based on a par value of $0.00001 with 50.4 million authorized shares, over 15.55 million shares issued, and more than 15.94 million shares outstanding.
Why Is It Called Par Value?
Par is said to be short for parity, which refers to the condition where two (or more) things are equal to each other. A bond trading at its stated face value is trading at par. Par may also refer to scorekeeping in golf, where par is the number of strokes a player should normally require for a particular hole or course.
What’s the Difference Between a Bond’s Par Value and Its Face Value?
Nothing, the two terms are interchangeable. The par value for a bond is typically $100 or $1,000 because these are the usual denominations in which they are issued.
Is Par Value the Same as Book Value?
No. Book value is the net value of a firm’s assets found on its balance sheet, and it is roughly equal to the total amount all shareholders would get if they liquidated the company. Book value will often be greater than par value, but lower than market value.
Is Par Value More Important Than Market Value?
This depends on the type of asset you’re talking about. The par value matters for long-term bondholders because it is the bond’s face value or the amount that will be repaid as principal when the bond matures. This is regardless of what the market price is at any point in time.
The market value, on the other hand, is what matters the most for stock traders. This is the current price of shares and reflects how much people are willing to pay at a specific time.
What Are the Market Value and Par Value Methods for Treasury Stock?
Treasury stock refers to previously outstanding stock that is bought back from stockholders by the issuing company. There are two methods to record a firm’s treasury stock: the market value method and the par value method.
The market value method uses the market value paid by the company during a repurchase of shares and ignores their par value. In this case, the cost of the treasury stock is included within the stockholders’ equity portion of the balance sheet.
Under the par value method, the treasury stock account is debited when shares are repurchased. This decreases the total shareholder’s equity in the amount of the par value of the shares being repurchased. It is common for stocks to have a minimum par value, such as $1, but sell and be repurchased for much more.
The Bottom Line
As an investor, it’s important to understand the difference between par and market values. The term par value refers to an asset’s face value or the (original) price when it is issued while the market value is the price at which investors are willing to acquire an asset at any given time. Par values are important for people who invest in bonds because they represent the principal amount that is repaid to them at maturity in addition to any interest. Market values are used for stocks because their prices fluctuate during the trading day.
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