With investing activity, the term ‘par value’ refers to the currency value of a security based on the price that the issuing company has determined for the asset.
Also known as face value or book value, par value is the stated value of an asset over a given period of time. This type of value identification is used in many different applications and can relate to the prices associated with bonds or other assets. In most scenarios, the nominal value is different from the real value, which is the value of the asset adjusted to account for inflation.
With investment activity, par value is sometimes identified as par value. In this application, the term refers to the currency value of a security based on the price that the issuing company has determined for the asset. It has nothing to do with what is perceived as the market value of the security. An exception would be the issuance of a security whose purchase price is set by the issuer at a price lower than face value, due to the fact that the security will be worth face value at the time of maturity of the instrument.
In any situation involving a fixed income security, par value is likely to be identified as face value. Here, face value represents what that bond is worth today. If the security has earned some sort of real rate of return since purchase, that amount will be greater than the purchase price. In situations where the security is trading at a lower unit price than when it was purchased, the par value today is lower than the original purchase price.
Other terms may be used in place of the face value, depending on the configuration. When referring to the value of capital goods, the par value is often called the book value. This is commonly seen in the used car business, where buyers and sellers will be less concerned with the original cost of the vehicle and more focused on what is considered the value of that vehicle at the time.
Identifying the par value is often useful as it serves as the basis for calculating the real value of an asset. For example, assuming that an asset sold for $500.00 US dollars (USD) in 1995, and did not depreciate, you could adjust this number for inflation and determine the actual value of that asset in 2005, 2006, or whatever. year other than 1995. From this perspective, the price or nominal value is seen as the factor that established what is considered a standard or starting point for identifying the real value of an asset at any other time.