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Par Value

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Par value is the face or stated value of a security. For common stock, par value is merely a vestige of earlier corporate law and is now usually meaningless. Many states no longer require that a new equity issue have a stated par value; thus companies issue new shares without a par value, or "no par value" stock. Where state law still requires a par value, issuing corporations often choose a par value of $.01. Most important, the par value of common stock usually bears no relationship to either the cash the company received when issuing it or its current market value. In contrast, preferred stock is usually issued and sold near its par value, and its dividend rate is often stated as a percentage of that par value. Similarly, the par value of a bond is its face value, i.e., the amount of principal due to shareholders at maturity. But note that, because of interest rate fluctuations, the price of a bond after issuance is rarely its par value.



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