Par Value – What it is and How it Works

par valueA bond’s par value is the amount that you will receive back at the bond’s stated maturity date. Most bond’s are issued with a par value of $1000 per bond, meaning that you will receive $1000 when the bond matures, in addition to any coupon payments you have received over the life of the bond.

It is important not only because that’s how much you receive when the bond matures, but also because a bond’s coupon payment is calculated based on its par value.  If a bond has a par value of $1000, and a 5% coupon, that means an investor in that bond will receive $50 in interest per year.

Between the time a bond is issued, and its maturity date, the value of most bonds will fluctuate. A bond’s price changes based on interest rate movements, which you can learn more about here.  If interest rates fall after a bond is issued, the bond will trade above its par value.  When bonds are trading above their par value they are said to be trading at a premium.  When a bond is trading at a price which is below its par value is said to be trading at a discount.

Stocks also have par values, however they have little or no significance for common stockholders.  With preferred stocks, par value is significant because the percentage dividend which is paid to preferred stockholders is calculated based on its par value.

For the definition and explanation of more bond related words visit the Learn Bonds glossary where we give the meaning of many additional terms.

Learn More

Buying Bonds – A How to Guide
Bond Basics – Interest and Maturity
Where To Buy Bonds?
Where to find bond prices

Print Friendly

Get Free Market Updates

Related posts:

                          

Leave a Reply

Your email address will not be published. Required fields are marked *