At Par

What Does “At Par” Mean?

The term “at par” means “at face value.” Bonds, preferred stocks, or other debt securities can be traded at par or at face value, below par, or above par.

Par values are normally constant, as opposed to market prices, which fluctuate with consumer demand and interest rate movements. The par value or face value is allocated at the time a security is issued. Since securities are typically issued in printed form, the par value is normally written on the security’s “face,” hence the term “face value.” At par generally means “equivalent to face value,” which is also known as the “par value.”

Understanding “At Par” and Par Value

Owing to regular changes in interest rates, bonds and other financial securities often do not really trade at their par values. For example, a bond may not sell at par if the prevailing interest rate is higher or lower than the coupon rate of the bond. The coupon rate can be defined as the interest rate it yields.

Par values are generally fixed at 100, in lieu of 100% of the face value of the $1,000 bond. So, when a bond is quoted or said to be trading at 100, it means that the bond is trading at 100% of its par value, which is $1,000. However, if a bond is said to be trading at 85, it means that it is trading at only 85% of its par value, making it $850.

Bond Yields and Coupon Rates

A bond that is trading at its par value normally comes with a market interest rate that is equivalent to its assigned coupon rate. Investors of the bond, in turn, anticipate a return equal to the coupon for the cost of borrowing to the bond issuer.

Par Coupon Rate = Interest Rate

The Coupon Rate and the Interest Rate in Relation to the Bond Price

Where:

• C is the coupon payment.
• n is the number of payment periods.
• i is the interest rate.
• FV is the value at maturity. Face value is also known as par value.

Shown above is the formula for computing the price of a bond. The present value formula is used to determine the bond price. It is important to note that the coupon rate and the interest rate are essential in bond pricing or valuation and to remember that a bond that is trading “at par” will take on the same coupon rate and interest rate.

Consider a bond with a face value of $100 and a maturity of five years. The bond comes with an annual coupon rate of 6% charged annually. The market interest rate is 6%.

Using the bond pricing formula, we can now show that the bond is valued “at par.”

Coupon and Interest Rates

Coupon interest rates are calculated as a percentage of the nominal value of the bond but vary from the interest rates on other financial instruments since it is the dollar amount and not the percentage that is fixed over time. A bond with a face value of $100 and a coupon rate of 5% will pay $5 in interest even if the bond price goes up or falls.

Par Values and Stocks

Par value assumes little or no importance in equity markets because it does not necessarily affect the price of the stock itself. A stock’s par value is usually $0.01 per share and is set out in the articles of incorporation of the issuer. Nevertheless, the par values for preferred stocks can be higher, as they are also used to estimate dividends.

Why “At Par” Matters

Par value is a benchmark for pricing bonds. Whenever the price of the bond is set below the par value, the bond is deemed to be “discounted” or trading at a discount; when the price of the bond is above the par value, the bond is considered to be trading at a premium.

Related Readings

CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:

• Coupon Rate
• Par Bond
• Discount Rate
• Articles of Incorporation
• See all fixed income resources