======Par======
Par (also known as '[[par value]]' or '[[face value]]') is the nominal, stated value of a security, determined by the issuing company. Think of it as the official "sticker price" printed on a financial instrument. However, its importance varies dramatically depending on whether you're looking at a bond or a stock. For a bond, par value is king—it's the amount the issuer promises to pay you back when the bond matures. A $1,000 par value bond means you'll get $1,000 back at the end of its term. For a stock, par value is mostly a ghost from the past; it's a tiny, arbitrary accounting figure (like $0.01) with virtually no connection to the stock's actual [[market price]] or its true worth. Mistaking a stock's par value for its real value is a surefire way to get tangled in financial history instead of making sound investment decisions.
===== Par Value in Bonds - The Real Deal =====
For bond investors, par value is the North Star. It's the fundamental number around which a bond's life revolves.
The par value, typically $1,000 or €1,000, serves two critical functions:
  * **Principal Repayment:** It is the [[principal]] amount the issuer must repay to the bondholder on the [[maturity date]]. No more, no less. It's the promise at the heart of the bond contract.
  * **Coupon Calculation:** A bond's interest payments, known as [[coupons]], are calculated as a percentage of its par value. For example, a bond with a $1,000 par value and a 5% [[coupon rate]] will pay the investor 5% x $1,000 = $50 in interest each year.
Bonds don't always trade at their par value in the open market. Their prices fluctuate based on prevailing [[interest rates]] and the issuer's creditworthiness. This leads to three scenarios:
  * **Trading at a [[Discount]]:** The bond's market price is //below// its par value (e.g., trading at $980 for a $1,000 par bond). This typically happens when market interest rates have risen above the bond's fixed coupon rate, making the older, lower-paying bond less attractive.
  * **Trading at a [[Premium]]:** The bond's market price is //above// its par value (e.g., trading at $1,020). This usually occurs when market interest rates fall below the bond's coupon rate, making its higher interest payments more desirable.
  * **Trading at Par:** The market price equals the par value. This is common when a bond is first issued or when its coupon rate perfectly matches current market rates.
===== Par Value in Stocks - A Historical Footnote =====
If par value is the star of the show for bonds, for [[common stock]], it's a barely remembered understudy. A stock's par value is a purely nominal figure assigned for accounting and legal purposes. It's often set at a trivial amount, like $0.01 or even $0.0001 per share.
Historically, par value represented the minimum legal price for a share at its [[Initial Public Offering]] (IPO) and established a company's stated capital. Companies were forbidden from paying [[dividends]] or buying back shares if it meant dipping into this stated capital base. The idea was to protect creditors by ensuring a minimum cushion of equity.
Today, however, these rules are largely obsolete. Most companies issue "no-par value" stock to avoid the legal hassle altogether. For investors, the takeaway is simple: a stock's par value has **no correlation** with its market price, its book value, or its [[intrinsic value]]. A share of Apple or Microsoft might have a par value of a fraction of a penny while trading for hundreds of dollars.
===== What Par Means for a Value Investor =====
Understanding the two faces of par is crucial for practical investing.
For the **bond investor**, par value is an anchor for analysis. It allows you to:
  * Calculate the [[yield to maturity]] (YTM), which is the total return you can expect if you hold the bond until it's repaid.
  * Identify opportunities. Buying a financially sound bond at a discount to par can be a smart move. You not only collect the coupon payments but also stand to realize a [[capital gain]] as the bond's price naturally converges toward its full par value at maturity.
For the **stock investor**, par value is noise. Ignore it. Focusing on a stock's par value is a classic beginner's mistake. A [[value investor]] is concerned with the underlying business—its earnings power, its competitive advantages, and the value of its assets. A stock's par value tells you nothing about any of these critical factors. It's an accounting relic, not an indicator of investment merit.