Par value

Par value is the legal capital per share, and is printed on the face of a stock certificate. It represents a minimum amount below which an entity's dividends cannot drop the amount of stockholders' equity, and was originally designed to represent a reserve for creditors. The par value is typically so low, however, that it affords no significant protection to creditors. In some states, there is no requirement to have par value at all.

The par value of a bond is its face value, and indicates the amount that the issuer will pay to bondholders as of the maturity date of the bond. This par value is typically set at $1,000. The market price of a bond will be above par value if the stated interest rate on the bond is higher than the market rate. Conversely, the market price will be lower if the stated interest rate is lower than the market rate, since the cash flows from the bond are worth less to the investor.