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Par

What is 'Par'

Short for "par value," par can refer to bonds, preferred stock, common stock or currencies, with different meanings depending on the context. Par most commonly refers to bonds, in which case it means the face value, or value at which the bond will be redeemed at maturity. This is usually $1,000 for corporate issues and can be more for government issues. A bond can trade above or below par, reflecting the broader interest rate environment and the issuer's perceived credit worthiness. 

Explaining 'Par'

Bonds

In its most common usage, par value applies to bonds. The term refers to the face value of the bond, that is, the value at which the issuer will redeem the bond at maturity (assuming it does not default). Most bonds are issued at par value, but this is not always the case: discount bonds can be issued below par value, but must be redeemed at that value. Par value for corporate bond issues is usually $1,000. Government issues can have higher par values. 

Preferred Stock

Preferred stock is equity, but bears similarities to a debt instrument. Preferred stock holders have priority over common shareholders when it comes to claiming a bankrupt company's assets, though bond holders have priority over them. Preferred stock generally pays higher dividends, which must be paid in full before common stock holders can receive theirs; the trade-off is that preferred shares lack voting rights.

Common Stock

Unlike bonds and preferred stock, the par value of common stock (also known as ordinary shares) has no bearing on its market value. Increasingly, common stock issues have no par value. When they do, it is often just $0.01. Par value is the minimum legal amount of shareholder equity a company must maintain, meaning that dividend payments cannot reduce it below that level. This requirement afforded a level of protection to creditors when markets were unregulated, but is now largely meaningless. For example, McDonald's Corp's (MCD) balance sheet listed its common stock as $16.6 million in 2012, 2013 and 2014; the company's market capitalization was recently (October 2015) around $97 billion, and has fluctuated a great deal in recent years without affecting the par value-based common stock account.

Currencies

For currencies, "par" means equal value. If a government decides to issue a new currency, they may issue it at par to the old one, that is, at a 1-to-1 exchange rate. The term can also refer to pegged currencies: the Cuban convertible peso (CUC), one of the country's two official currencies, is nominally pegged to the U.S. dollar at a 1-to-1 exchange rate, though a 10% tax is applied to dollar conversions (other currencies are exempt).


Further Reading


An empirical comparison of published replication research in accounting, economics, finance, management, and marketing
www.sciencedirect.com [PDF]
… The average time lag in years for each of the disciplines is as follows: accounting (3.6), economics (4.2), finance (3.9), management … Replications whose outcomes conflicted with previous research had an average time lag of 4.1 years, whereas those that par- tially (4.3 years …

The normative economics of health care finance and provisionThe normative economics of health care finance and provision
www.jstor.org [PDF]
… The average time lag in years for each of the disciplines is as follows: accounting (3.6), economics (4.2), finance (3.9), management … Replications whose outcomes conflicted with previous research had an average time lag of 4.1 years, whereas those that par- tially (4.3 years …

The transformation of business finance into financial economics: The roles of academic expansion and changes in US capital marketsThe transformation of business finance into financial economics: The roles of academic expansion and changes in US capital markets
www.sciencedirect.com [PDF]
… The average time lag in years for each of the disciplines is as follows: accounting (3.6), economics (4.2), finance (3.9), management … Replications whose outcomes conflicted with previous research had an average time lag of 4.1 years, whereas those that par- tially (4.3 years …

Testing for nonlinear unit roots in the presence of a structural break with an application to the qualified PPP during the 1997 Asian financial crisisTesting for nonlinear unit roots in the presence of a structural break with an application to the qualified PPP during the 1997 Asian financial crisis
onlinelibrary.wiley.com [PDF]
… The average time lag in years for each of the disciplines is as follows: accounting (3.6), economics (4.2), finance (3.9), management … Replications whose outcomes conflicted with previous research had an average time lag of 4.1 years, whereas those that par- tially (4.3 years …

The economics of Islamic finance and securitizationThe economics of Islamic finance and securitization
jsf.pm-research.com [PDF]
… The average time lag in years for each of the disciplines is as follows: accounting (3.6), economics (4.2), finance (3.9), management … Replications whose outcomes conflicted with previous research had an average time lag of 4.1 years, whereas those that par- tially (4.3 years …



Q&A About Par


What are some other uses for the term "par"?

Par is also used to refer to preferred stock, currencies and equity shares.

What is the par value of a bond?

The par value of a bond is the stated value or face value.

What is the most common use of par?

The most common use of par is in reference to bonds.

What does it mean to redeem shares at their original purchase price?

To redeem shares at their original purchase price means to pay back investors with cash, not with more shares in order to return them their investment plus interest.

What does preferred stock have in common with debt instruments?

Preferred stock has priority over common shareholders when it comes to claiming assets from a bankrupt company.

Does this mean that you can buy more than one share at a time if you have enough money?

You can buy more than one share at a time if you have enough money but only one vote per share regardless how many shares you own (unless your broker allows multiple votes).

What happens if dividend payments reduce shareholder equity below the minimum legal amount required by law?

Dividend payments cannot reduce shareholder equity below the minimum legal amount required by law.

What does "at par" mean?

At par means at the stated value or face value.

Is there any relation between face value and market value for common shares?

There is no relation between face value and market value for common shares as both can be different values entirely.

How can you tell if a stock is over or under its par value?

A stock that is over its par value has an issue price that exceeds the original issue price. A stock that is under its par value has an issue price that falls below the original issue price.

How does a bond trade above or below par value?

A bond can trade above or below par value depending on interest rates and credit worthiness of the issuer.

If there is no relationship between face value and market value, what determines market price of a share of stock?

Market price depends on supply and demand as well as investor perception about future performance of the company that issued it.

Why do preferred stocks pay higher dividends than common stocks?

Preferred stocks pay higher dividends because they lack voting rights.