ace Value

By 
JAMES CHEN
 
 
Reviewed by 
GORDON SCOTT
 
 
Updated Apr 29, 2021
What Is Face Value?
Face value is a financial term used to describe the nominal or dollar value of a
security, as stated by its issuer. For stocks, the face value is the original cost of
the stock, as listed on the certificate. For bonds, it is the amount paid to the
holder at maturity, typically in $1,000 denominations. The face value for bonds is
often referred to as "par value" or simply "par."

Volume 75%
 
1:16

Face Value

Understanding Face Value

In bond investing, face value (par value) is the amount paid to a bondholder at
the maturity date, as long as the bond issuer doesn't default. However, bonds
sold on the secondary market fluctuate with interest rates. For example, if
interest rates are higher than the bond's coupon rate, then the bond is sold at
a discount (below par).

Conversely, if interest rates are lower than the bond's coupon rate, the bond is
sold at a premium (above par). While face value of a bond provides for a
guaranteed return, the face value of a stock is generally a poor indicator of actual
worth.

 
While the par value of bonds is generally static, there is a noted exception with
inflation-linked bonds, whose par value is adjusted by inflation rates for
predetermined time periods.

Face Value and Bonds

A bond's face value is the amount the issuer provides to the bondholder, once
maturity is reached. A bond may either have an additional interest rate, or the
profit may be based solely on the increase from a below-par original issue price
and the face value at maturity.

Face Value and Stock Shares

The cumulative face value of the entirety of a company’s stock shares designates
the legal capital a corporation is obligated to maintain. Only the above-and-
beyond capital may be released to investors, in the form of dividends. In
essence, the funds that cover the face value, function as a type of default
reserve.

However, there is no requirement dictating the face value businesses must list
upon issue. This affords businesses the leeway to use very low values to
determine the size of the reserve. For example, the par value of AT&T shares is
listed as $1 per common share, while shares of Apple Inc. have a par value of
$0.00001.1  2

KEY TAKEAWAYS

 Face value describes the nominal value or dollar value of a security; the
face value is stated by the issuing party.
 A stock's face value is the initial cost of the stock, as indicated on the
certificate of the stock in question; a bond's face value is the dollar figure
due to be paid to the investor, once the bond reaches maturity.
 The actual market value of a stock or a bond is not reliably indicated by its
face value, because there are many other influencing forces at play, such
as supply and demand.
Face Value vs. Market Value
The face value of a stock or bond does not denote the actual market value, which
is determined based on principles of supply and demand--often governed by the
dollar figure at which investors are willing to buy and sell a particular security, at
a specific point in time. In fact, depending on market conditions, the face value
and market value may have very little correlation.