Par value is the nominal or face value of a financial instrument such as a bond or share, as stated by the issuer. It represents the original value assigned to the security when it is issued.
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Par value is the reference value used in many financial contracts.
For bonds, the par value is the amount the issuer promises to repay to the investor at maturity. It is also the amount on which interest payments are usually calculated. For shares, par value is often a small nominal amount assigned for legal or accounting purposes and does not necessarily reflect the market price. In most cases, the market value of a security can differ significantly from its par value.
Short example:
Suppose a bond is issued with a par value of $1,000.
The bond pays 5 percent annual interest based on this value.
This means the investor receives $50 in interest each year. When the bond reaches its maturity date, the issuer repays the $1,000 par value to the investor, regardless of the price the bond traded at in the market.
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