Face Value: What It Means and How It Differs From Market Value

Face value, also known as par value or par, is the nominal dollar value assigned to a financial security by its issuer. It serves different roles depending on the type of security and should not be confused with market value—the price investors currently pay.

Key takeaways

• Face value is the issuer-stated dollar amount of a security.
• For bonds, face value is the amount repaid at maturity (unless the issuer defaults).
• For stocks, face value is an assigned nominal amount and usually has little bearing on market price.
• Market value is set by supply and demand and can differ widely from face value.

Face value for bonds

• Definition: The principal amount a bond issuer promises to pay the bondholder at maturity.
• Coupon vs. price: A bond’s coupon (interest) is fixed relative to face value. On secondary markets, a bond’s trading price will fluctuate:
• If current interest rates > coupon rate → bond trades below par (discount).
• If current interest rates < coupon rate → bond trades above par (premium).
• Zero-coupon bonds: Sold below face value; investors earn profit when the bond matures at par.
• Exception: Inflation-linked bonds can have par values adjusted for inflation.

Face value for stocks

• Definition: The nominal value per share recorded on a company’s charter or stock certificate.
• Legal capital: Total face value of issued shares can determine a corporation’s legal capital or reserve, which historically protected creditors and shareholders.
• Practical relevance: Par values for common stock are typically set very low (often fractions of a dollar) and rarely reflect the company’s true economic value. Companies may choose low par values to reduce certain incorporation costs.
• Example: Some large companies have par values of $1 or even a tiny fraction of a cent per share.

Face value vs. market value

• Face value is fixed at issuance (except in special cases like inflation-linked bonds). Market value is the current trading price determined by buyers and sellers.
• For bonds, market price depends on interest rates, time to maturity, and issuer credit risk.
• For stocks, market price reflects investor expectations, earnings, growth prospects, and supply/demand dynamics—often far above the original par value.

Simple explanation

Think of face value as the “official” price printed on an instrument when issued. For bonds, that printed amount is what you get back at maturity. For stocks, the printed amount is usually just a formality; the market decides what shares are actually worth.

FAQs

Q: Is face value the same as par value?
A: Yes. Face value and par value are interchangeable terms referring to the nominal amount assigned by the issuer.

Q: How does face value differ from a bond’s market price?
A: Face value is the amount repaid at maturity. Market price fluctuates before maturity based on interest rates, remaining time to maturity, and the issuer’s creditworthiness.

Q: What is book value and how is it different?
A: Book value is a company’s net asset value on the balance sheet (assets minus liabilities). It’s an accounting measure of intrinsic value, whereas face value is a nominal per-share amount and market value is the trading price.

Bottom line

Face value is a nominal, issuer-assigned amount that matters most for determining a bond’s maturity payment and a corporation’s legal capital. It is not a reliable indicator of current market worth—market value, driven by supply and demand and other economic factors, determines what investors actually pay.