At Par

What “At Par” Means

“At par” means a security is trading at its face (par) value. For bonds and preferred stocks, par value is the fixed amount assigned when the security is issued. A market price equal to par means the investor would pay 100% of that face value. Prices above par are called premiums; prices below par are discounts.

Why Market Prices Move Relative to Par

Market value diverges from par because of:
* Interest rate changes — rising rates tend to push existing bond prices below par; falling rates push them above par.
* Credit quality — deteriorating issuer credit can lower market price; improving credit can raise it.
* Time to maturity — as a bond approaches maturity, its price typically converges toward par.

Because these factors continually change, most bonds rarely trade exactly at par.

Issuing Bonds: Par, Discount, Premium

When a bond is sold:
* Issued at par — issuer receives the face value.
* Issued at a discount — issuer receives less than face value.
* Issued at a premium — issuer receives more than face value.

Whether a new bond sells at par, discount, or premium depends mainly on how its coupon rate compares to prevailing market yields and investor demand.

Coupon Rate vs. Yield

• Coupon rate — the fixed interest payment set when the bond is issued (expressed as a percentage of par).
• Yield — the effective return to an investor, which varies with the bond’s current market price.

When a bond trades at par, its yield equals its coupon. If the market price falls below par, the yield exceeds the coupon; if the price rises above par, the yield is below the coupon.

Practical Examples

• If a bond has a 5% coupon but similar-risk bonds yield 10%, buyers will pay less than par so the effective yield rises to 10.
• If the market yield is 3%, a 5% coupon bond becomes attractive and will trade above par, reducing its yield to the prevailing 3%.

At maturity, the issuer repays the bond’s par value regardless of interim price fluctuations.

Par Value for Common Stock

Par value for common shares is largely symbolic today. Corporations often assign a very small par value (e.g., $0.01) in their charters to meet legal requirements. This assigned par has little to do with the stock’s market price.

Key Takeaways

• “At par” means trading at the security’s face value.
• Market prices move above or below par due to interest rates, credit changes, and time to maturity.
• Coupon rate determines scheduled interest payments; market yield reflects the bond’s current price and effective return.
• New bonds can be issued at par, at a discount, or at a premium depending on how their coupon compares with market yields.

FAQs

Q: What is a bond’s par value?
A: The face amount the issuer agrees to repay at maturity (commonly $1,000 or $100).

Q: Are bonds always issued at par value?
A: No. Bonds may be issued at a premium or discount to align the bond’s yield with market conditions.

Q: What is the difference between coupon rate and yield?
A: The coupon rate is the fixed interest payment based on par; yield is the effective return based on the bond’s current market price.