Face value, sometimes referred to as par value or nominal value, is the value that is printed on the face of a financial instrument like a coin, banknote, stamp, bond, or share certificate. This value forms the basis upon which the product is traded in the market. For coins and banknotes, face value refers to the denominational value. That is, a $5 note will have a face value of $5. For other financial instruments such as shares and bonds, the face value is the original pricing of the instrument when issued by the issuer. It is used to calculate interest or dividends to be paid.
Please note that the face value of a bond does not represent the market price. It is simply the value at which it will be redeemed upon maturity. Similarly, for shares, the face value is not directly related to the market value of a share which can fluctuate depending on several other factors.
1. What is Market Value?
Market value refers to the price an asset (like stocks, bonds, property, etc.) would fetch in the marketplace. This value fluctuates with market conditions such as demand and supply.
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2. Can Face Value be more than Market Value?
Yes, it’s possible. When the market price of a share or a bond falls below its face value, it is said to be trading at a discount.
3. What is the difference between Face Value and Book Value?
Face Value is the value of a company’s shares as stated in its books, while Book Value is the total value of the company’s assets minus its outstanding liabilities.
4. Does the Face Value of Shares Matter?
Yes, it matters because the face value is used to calculate the dividend a shareholder will receive, and it’s also used in measuring a company’s market capitalization.
5. What happens when the Face Value of a Bond Increases?
When the face value of a bond increases, the interest paid to bondholders also increases because bond interest is calculated on face value. However, this usually doesn’t happen because the face value of a bond is often fixed at the time of issue.