When referring to the value of financial instruments, there's no difference between par value and face value. Both terms refer to the stated value of the financial instrument at the time it is issued.
Breaking It Down
The par value of a bond can also be thought of as the amount of money to be paid to the purchaser at bond maturity. Generally, bonds are issued with par values of either $1,000 or $100. If an investor purchases a bond with a $1,000 par value and a maturity date set five years down the road, then the issuing entity is required to pay the investor, or bondholder, $1,000 after the five years has passed.
The face value of a share of stock is the value per share as stated in the issuing company's charter. This is the minimum value that each shareholder is expected to pay per share of stock in order to fund the business. This value is usually quite low – nearly $0 per share – to protect shareholders from liability in the event the business is not able to meet its financial obligations.
Face value is typically an arbitrary number agreed upon by the issuer, which is usually indicated on the company's balance sheets. The face value, while arbitrary in appearance, is determined by companies so they can get real numbers for growth and projected needs. For example, if the issuer needs to have a factory built that has a cost of $2 million, it may price stocks at $1,000 and issue 2,000 of them to raise the needed funds. The value of the stocks increases as the issuer begins to turn quarterly profits and sees returns on the investments generated by investors purchasing the stocks.
While the face, or par, value of these securities is important, it has little bearing on the price an investor must pay to purchase a bond or a share of stock, called the market value. The market value of stocks and bonds is determined by the buying and selling of securities on the open market. The selling price of these securities, therefore, is dictated more by the psychology and competing opinions of investors than it is by the stated value of the security at issuance.
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