par value

Examples of par value in the following topics:

• Par Value at Maturity

  • Par value is stated value or face value, with a typical bond making a repayment of par value at maturity.
  • Par value, in finance and accounting, means the stated value or face value.
  • From this comes the expressions at par (at the par value), over par (over par value) and under par (under par value).
  • Par value of a bond usually does not change, except for inflation-linked bonds whose par value is adjusted by inflation rates every predetermined period of time.
  • Bond price is the present value of coupon payments and the par value at maturity.

• Par Value

  • Par value means stated value or face value in finance and accounting.
  • From this comes the expressions at par (at the par value), over par (over par value) and under par (under par value).
  • A newly issued bond usually sells at the par value.
  • Pull to par is the effect in which the price of a bond converges to par value as time passes.
  • Assess when a bond should be sold at its par value

• Time to Maturity

  • "Time to maturity" refers to the length of time before the par value of a bond must be returned to the bondholder.
  • "Time to maturity" refers to the length of time that can elapse before the par value (face value) for a bond must be returned to a bondholder.
  • Once this time has been reached, the bondholder should receive the par value for their particular bond.
  • This is because the par value is discounted at a higher rate further into the future.
  • Where the market price of a bond is less than its face value (par value), the bond is selling at a discount.

• Treasury Stock

  • Treasury stock can be accounted for using the cost or par value methods.
  • When using the par value method, the company's reacquisition of its own stock is treated as a retirement of the shares reacquired.
  • On the purchase date, treasury stock is increased (debited) for the par value of stock reacquired and paid in capital is reduced (debited) or increased (credited) by the amount of the purchase price in excess of par.
  • When the stock is resold, treasury stock is credited for the par value of the stock sold.
  • Distinguish between the cost method and the par value method of recording treasury stock

• Accounting for Preferred Stock

  • Unlike common stock, which has no set maximum or minimum dividend, the dividend return on preferred stock is usually stated at an amount per share or as a percentage of par value.
  • For par value preferred stock, the dividend is usually stated as a percentage of the par value, such as 8% of par value; occasionally, it is a specific dollar amount per share.
  • Most preferred stock has a par value.
  • Preferred stockholders receive the par value (or a larger stipulated liquidation value) per share before any assets are distributed to common stockholders.
  • The par value, authorized shares, issued shares, and outstanding shares is disclosed for each type of stock.

• Coupon Interest Rate

  • The coupon rate is the amount of interest that the bondholder will receive per payment, expressed as a percentage of the par value.
  • The coupon rate is the amount of interest that the bondholder will receive expressed as a percentage of the par value.
  • Thus, if a bond has a par value of 1,000 and a coupon rate of 10,100 a year during the time between when the bond is issued and when it matures.
  • Such bonds make only one payment–the payment of the face value on the maturity date.
  • Normally, to compensate the bondholder for the time value of money, the price of a zero-coupon bond will always be less than its face value on any date before the maturity date.

• Preferred Stock Rules and Rights

  • Preferred stock may or may not have a fixed liquidation value (or par value) associated with it.
  • Preferred stock has a claim on liquidation proceeds of a stock corporation equal to its par (or liquidation) value, unless otherwise negotiated.
  • The dividend is usually specified as a percentage of the par value, or as a fixed amount.

• Yield to Maturity

  • Yield to maturity (YTM) = [(Face value / Present value)1/Time period]-1
  • If the yield to maturity for a bond is less than the bond's coupon rate, then the (clean) market value of the bond is greater than the par value (and vice versa).
  • If a bond's coupon rate is equal to its YTM, then the bond is selling at par.
  • For instance, you buy ABC Company bond which matures in 1 year and has a 5% interest rate (coupon) and has a par value of $100.
  • If you hold the bond until maturity, ABC Company will pay you $5 as interest and $100 par value for the matured bond.

• Accounting Considerations

  • If a firm authorizes a 15% stock dividend on Dec 1st, distributable on Feb 29, and to stockholders of record on Feb 1, the stock currently has a market value of $15 and a par value of $4.
  • The value of the dividend is (150,000)(15%)(15) = $337,500.
  • The declaration of this dividend debits retained earnings for this value and credits the stock dividend distributable account for the number of new stock issued (150,000*.15 = 22,500) at par value.
  • We must also consider the difference between market value and par (stated) value and record that as credit for additional paid-in-capital .

• Claim to Income

  • Preferred stock may or may not have a fixed liquidation value (or par value) associated with it.
  • Preferred stock has a claim on liquidation proceeds of a stock corporation equal to its par (or liquidation) value, unless otherwise negotiated.
  • As company value increases based on market determinants, the value of equity held in this company also will increase.
  • In turn, should market forces decrease, the value of equity held will decrease as well, reflecting a loss on investment and, therefore, a decrease on the value of any claims to income for shareholders.