Par Value

Ref:RiskGlossary

"250,000 shares of common stock will be issued, each with a par value of $10, and 10,000 shares of preferred stock will be issued, each with a par value of $100."



Par value can be thought of as the stated issue price of any security.
For investors, par value served as a guarantee that other investors would not receive shares on more favorable terms.The protection par values provided investors became less important over time. Financial regulation and increased transparency—due to newspapers and telecommunications—made them less important. Also, as markets became more liquid, with prices responded more rapidly to market developments, it became increasingly difficult for a corporation to commit in advance to issue securities at their par value.

• Common Stock:par value became a stated minimum issue price. In the United States, a corporation could issue stock at a price in excess of par value. If it issued the stock below par value, the stock was called watered. Purchasers of watered stock were liable 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. In jurisdictions that still require them, corporations typically state nominal par values, perhaps listing a USD .01 par value for a stock that will be issued at USD 25.00 .if common stock is callable, it is usually at par value or at a small premium over par value.Proceeds from common stock sale above par value are reported as additonal paid in capital.

• Preferred Stock:Preferred stock is typically issued at a price close to their par value. Preferred stock dividends are calculated as a percentage of par value.

• Bonds:A standard coupon bond is designed to be sold for some par value, pay periodic coupon payments equal to a percentage of that par value, and then return the par value to the investor at maturity. Accordingly, the par value, together with any final coupon, is the maturity value of the bond. Due to interest rate fluctuations between the time that a bond's coupon is set and the time when the bond is actually issued, bonds rarely sell at exactly par value.At issuance or in the secondary market, a bond sells above par if the clean price (the sale price less any accrued interest) exceeds its par value. It sells below par if the clean price is below par. It sells at par if the clean price equals the par value. A bond's price may be above or below par due to changes in interest rates or change in the bond' credit quality.Treasury bonds typically have par values of USD 10,000. For municipal bonds or corporate bonds, these are typically USD 5,000 and USD 1,000, respectively.