Face value
Face value, also known as par value or nominal value, refers to the original amount or price assigned to a financial instrument by its issuer at the time of creation.[1] This fixed value is printed or stated on securities such as bonds, stocks, currency notes, and bills, serving as the baseline for calculations like interest payments and maturity repayments.[2] In essence, it represents the inherent worth of the instrument as declared, independent of market fluctuations, and is crucial for legal, accounting, and transactional purposes in finance.[3] In the context of bonds, face value denotes the principal amount that the issuer promises to repay the bondholder upon maturity, typically in denominations like $1,000, and forms the basis for computing periodic coupon interest using the formula: Coupon Payment = Face Value × Coupon Rate.[3] For instance, a bond with a $1,000 face value and a 5% coupon rate yields $50 in annual interest.[3] Bonds may trade at a premium (above face value) or discount (below face value) depending on prevailing interest rates relative to the coupon rate, but the face value remains unchanged.[2] For stocks, face value is the minimal nominal amount per share set by the issuing company, often a low figure like $0.01 or $1 to minimize incorporation costs and establish legal capital requirements.[1] It differs significantly from the stock's market value, which is determined by supply and demand in the trading market; for example, Apple's shares have a face value of $0.00001 but traded at approximately $195 per share as of May 2025.[1] Face value for stocks can adjust during events like stock splits, such as Tesla's 5-for-1 split in 2020, which proportionally reduced the per-share face value while preserving total equity.[2] Beyond securities, face value applies to currency and other instruments like insurance policies, where it indicates the stated monetary amount—such as $100 on a U.S. bill—or the guaranteed payout, like a $1 million life insurance death benefit.[2] Unlike market value, which reflects current economic conditions and investor sentiment, face value provides a stable reference point that does not fluctuate unless altered by specific corporate actions.[1] This distinction is fundamental in financial analysis, as it helps assess pricing discrepancies and investment yields.[3]Financial contexts
Definition in securities
In securities, face value—also known as par value or nominal value—refers to the fixed amount assigned by the issuer and printed on the security document, such as a bond certificate or stock share, representing the principal amount to be repaid at maturity for debt instruments or the original issuance value for equity securities.[4][1] This value serves as the baseline for contractual obligations and is established at issuance, remaining unchanged throughout the security's life unless explicitly modified by the issuer.[3] Face value is distinct from market value, which fluctuates based on supply and demand in the secondary market; redemption value, which for bonds is generally equal to the face value repaid at maturity; and book value, which represents the net asset value of the issuing company or the accounting value of assets minus liabilities, rather than the nominal amount of individual securities.[1][5] These distinctions ensure that face value provides a stable reference point for legal and financial purposes, independent of external market dynamics or company performance metrics.[3] For bonds, face value (FV) forms the basis for interest calculations in simple cases, using the formula: \text{Interest} = \text{Coupon Rate} \times \text{FV} This determines periodic coupon payments regardless of the bond's current market price.[3] For example, a bond with a $1,000 face value and a 5% annual coupon rate yields $50 in yearly interest.[3] In stocks, face value, or par value, plays a key role in accounting by representing the minimum legal capital contributed by shareholders, recorded on the balance sheet under shareholders' equity as part of the common stock account.[6] The par value per share is a nominal amount set by the issuing company, typically low to minimize costs, with the total legal capital being the par value multiplied by the number of issued shares to ensure compliance with corporate laws that protect creditor interests by limiting distributions below this threshold.[7] For instance, if a corporation authorizes $1 million in capital and issues 1 million shares, the face value per share would be $1, forming the foundational equity entry in financial statements.[6]Application to bonds
In the context of bonds and debentures, face value represents the principal amount that the issuer agrees to repay the bondholder at maturity. This amount serves as the benchmark for redemption, regardless of fluctuations in the bond's market price during its term. For instance, zero-coupon bonds, which pay no periodic interest, are typically issued and sold at a substantial discount to their face value, with the investor receiving the full face value upon maturity to realize the return.[8][9][10] Interest payments on coupon-bearing bonds are calculated as a fixed percentage of the face value, known as the coupon rate, and are not adjusted based on the bond's current market price. These payments occur periodically—often semi-annually—and follow the formula for the periodic interest payment:\text{Payment} = \left( \frac{\text{Coupon rate}}{\text{Payment frequency}} \right) \times \text{Face value}
where the coupon rate is expressed as a decimal. This structure ensures predictable income for holders who retain the bond until maturity.[11][12][13] Bonds may be issued at a discount (below face value) when market interest rates exceed the coupon rate, or at a premium (above face value) when rates are lower, but the face value itself remains unchanged and is the amount repaid at maturity. Over time, the bond's market price amortizes toward the face value as maturity approaches, reflecting the time value of money.[14][15][11] A typical corporate bond might have a face value of $1,000 and mature in 10 years, with the issuer repaying the full $1,000 principal plus any accrued interest at the end of the term. Similarly, U.S. Treasury bonds, with a standard face value of $1,000, are auctioned such that the face value determines the principal repayment, while the auction yield influences the initial purchase price relative to that face value.[8][16][14] Legally, the face value is enforceable under the terms of the bond indenture, which outlines the issuer's obligations; in the event of default, bondholders or the trustee can accelerate maturity and demand immediate repayment of the full principal amount plus interest.[8][17][18]