Par value
from class:
Financial Accounting I
Definition
Par value is the nominal or face value of a stock or bond, as stated in the corporate charter. It is the minimum price at which shares can be issued and does not reflect the market value.
5 Must Know Facts For Your Next Test
- Par value is typically set very low to avoid legal issues with issuing shares below this amount.
- It is different from market value, which fluctuates based on supply and demand.
- Par value of common stock may be as low as $0.01 per share.
- Preferred stocks often have a higher par value than common stocks.
- Some modern corporations issue no-par stock, which has no stated face value.
Review Questions
- What is the primary purpose of setting a par value for stock?
- How does par value differ from market value?
- Why might a corporation choose to issue no-par stock?
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