face value

noun
Updated on: 26 Jul 2017

Definition of face value

  1. 1 :  the value indicated on the face (as of a postage stamp or a stock certificate)

  2. 2 :  the apparent value or significance if their remarks may be taken at face value

Examples of face value in a Sentence

  1. We paid $100 for tickets that had a face value of $50.

First Known Use of face value

1851


Financial Definition of FACE VALUE

face value

What It Is

Face value, also referred to as par value or nominal value, is the value shown on the face of a security certificate, including currency. The concept most commonly applies to stocks and bonds, so it is particularly important to bond and preferred stock investors.

How It Works

Face value is an often arbitrarily assigned amount used to calculate the accounting value of a company's stock for balance sheet purposes.

When it comes to bonds and preferred stock, however, face value represents the amount that must be repaid at maturity. Corporate bonds usually carry a $1,000 face value, municipal bonds usually carry a $5,000 face value, and government bonds usually carry a $10,000 face value, though these amounts can vary widely.

Let's assume Company XYZ decides to issue $1,000,000 in bonds to raise capital to help fund the construction of a new factory. If each bond had a face value of $1,000, the company would have to issue 1,000 bonds to meet its $1,000,000 goal.

This bond issue would also pay interest in an amount per bond that is impacted by the amount of the face value. For example, if the bonds paid 5%, it means they will pay interest amounting to 5% of the bond's face value each year. That would mean interest payments totaling $50 annually for a bond with a $1,000 face value.

Why It Matters

Face value is a crucial component of many bond and preferred stock calculations -- including interest payments, market values, discounts, premiums, and yields.

As shown in the example above, the interest on a bond is usually calculated as a percentage of face value. Additionally, bondholders often receive a percentage over the bond's face value as a redemption premium if the borrower decides to repay the debt before it is due (known as a callable bond, this is often done on a sliding scale based on when the bonds are redeemed).

It is important to note that when it comes to stocks, face value (or par value) generally has no relation to market price. Bond prices, however, are heavily influenced by their face value. Bonds are usually quoted as a percentage of face value. However, their prices can climb above (premium) or fall below (discount) their face value based on changes in interest rates and the financial health of the underlying issuer.


FACE VALUE Defined for English Language Learners

face value

noun

Definition of face value for English Language Learners

  • : the value that is printed or shown on something (such as a coin or bill)


Law Dictionary

face value

noun

Legal Definition of face value

  1. :  the value indicated on the face of something (as a stock certificate)



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