Finance: What is Par Value?

What is par value? The notional value of a stock or bond before an offering takes place. When a company is started, founders come up with a par value for their shares, usually fractions of a penny. With bonds, par value is normally $1,000, comprising one unit of a bond offering.

College and CareerPersonal Finance
CoursesFinance Concepts
FinanceFinance Definitions
Financial Responsibility
Personal Finance
Finance and EconomicsTerms and Concepts
LanguageEnglish Language
Life SkillsFinance Definitions
Personal Finance
SubjectsFinance and Economics
Terms and ConceptsAccounting
Banking
Bonds
Company Valuation
Credit
IPO
Investing
Managed Funds
Muni Bonds
Tax

Transcript

00:27

then your quote supposed to unquote to putt for a total of four strokes at par [Man struggling to put the ball in the golfer hall]

00:32

4 right and it may or may not include saying close enough and picking up your

00:36

ball five feet away from the hole while calling it a gimme so yeah that's par

00:40

four strokes on a par 4 well in finance par value generally relates to the [Definition of par value relating to pricing of bonds written on chalkboard]

00:45

pricing of bonds and you'll see where we're going here with the right number

00:49

in quotes for a bond a corporation needs to borrow money to say build a new nose [Elephant using a noseclipper and chasing a man]

00:54

clipper factory well that new factory will allow the corporations

00:59

export Clippers to China and allow its products to be more high-tech yeah these

01:03

things are now the equivalent of a Brazilian wax for your nostrils anyway [Man giving a Brazilian wax to another mans nostrils]

01:07

the company along with its bankers believes that it should have to pay

01:10

about six percent interest on the loans it's taking out so it markets its bonds

01:14

as six percenters and in the process a more positive story is told to Wall [Men discussing the nose clipper industry bonds on Wall Street]

01:18

Street about the future of nose clipping technology as pioneered by shnozholes

01:24

Inc the perceived risk in the bond so sound and there's a lot of demand by [People looking up at Shnozholes, Inc building]

01:28

them the standard unit in which a bond is generally sold is a thousand dollars

01:33

that's a thousand dollars for each unit of a bond got it so on one unit of a

01:38

typical bond that thousand dollars interest is paid twice a year ie in this

01:43

case the company would be paying thirty bucks twice a year to rent each unit of [Company paying a bank $30 twice]

01:48

it's thousand dollar loan so the company issues the bonds and all of a sudden

01:52

they trade up on strong demand from Wall Street to eleven hundred dollars per

01:56

unit well a new buyer of the bond would be getting less than six percent [A new person buying bonds from the company]

02:01

interest when they bought that bond for 1,100 bucks because even though they

02:04

still get 30 bucks twice a year in bond rent money instead of paying a grand for

02:09

that 60 bucks a year they had to pay 1100 dollars for it in fact at 11 hundred [Buyers trading $1000 for $1,000]

02:13

dollars and still getting 60 bucks a year the interest rate has fallen to

02:18

about 5.45 percent ie less than six the quote right unquote value of that bond

02:24

or its par values yeah we went there, was a thousand bucks that's where it was

02:29

priced when it was offered and it's that thousand dollars from which the interest [Bank with a thumbs up beside the par value price]

02:33

payments are pegged how do we know what par value is well you can guess.. little

02:39

birdie told us [golfball striking a little bird perched on a tree]