Business, Legal & Accounting Glossary
n. in shares of stock, the original cost of the stock shown on the certificate, or “par value.
Face value is the nominal, or stated, amount of security.
For example, a bond with a face value of $1,000 and an interest rate of 6% will pay $60 in interest a year (or, more typically, $30 semi-annually). Importantly, face value is not usually the actual value (i.e. price) of a bond.
For example, assume a 30-year bond with a face value of $1,000 and an interest rate of 6%; the interest rate for bonds of similar safety and maturity is currently 10%. In that case, the actual value of the 6% bond would be below the face value, because investors could invest their money in 10% bonds with a face value of $1,000 and earn $100 a year instead of $60. Conversely, if interest rates fell to 2%, the actual value of the 6% bonds would be above face value, because investors would need to buy 2% bonds with a face value of $3,000 to earn the same $60.
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This glossary post was last updated: 8th May, 2020 | 14 Views.