Par Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Par, written in plain English, along with examples of how it is used.
What is Par?
It refers to an equivalence between the market price and the nominal or face value of stocks,bonds,bills of exchange.Stocks when sold at nominal value are at par, above par for a higher value and below par for a lower value.
History and Meaning of Par
The term "Par" is used in finance to refer to the face value of a security or financial instrument, such as a stock, bond, or bill of exchange. The term has its origin in Europe and was used to describe the price at which a bill of exchange was issued or redeemed. Today, the term is still widely used in financial markets to describe the value of securities.
In the context of stocks, bonds, and bills of exchange, the term "par" refers to the nominal or face value of the security. When a security is sold at its face value, it is said to be sold "at par." If the price of the security is higher than its face value, it is sold "above par," and if the price is lower than its face value, it is sold "below par."
Examples of Par
Here are a few examples of how the term "par" might be used:
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In an initial public offering (IPO), a company might issue shares of stock at a price of $10 per share, which is the par value of the stock. If the stock is in high demand, investors might be willing to pay more than $10 per share, so the stock would be sold above par. If investors are less interested in the stock, they might only be willing to pay $8 per share, so the stock would be sold below par.
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A bond might have a face value of $1,000 and pay a coupon rate of 5%. If the bond is sold for $1,000, it is sold at par. If it is sold for more than $1,000, it is sold above par, and if it is sold for less than $1,000, it is sold below par.
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A bill of exchange might have a face value of $10,000 and be issued at par. When it is redeemed, it will be redeemed at par, which means the issuer will pay the holder $10,000.
Legal Terms Similar to Par
Here are a few related terms:
- Discount: A security is sold at a discount when it is sold for less than its face value.
- Premium: A security is sold at a premium when it is sold for more than its face value.
- Nominal value: The face value of a security.
- Coupon rate: The interest rate paid on a bond or other fixed-income security.
- Yield: The return on a security, expressed as a percentage of its price.