Face Value

What is face value?

The face value of a financial instrument, such as a bond or a stock, is the value that is printed on the instrument itself. For a bond, the face value is the amount of money that the issuer promises to pay the holder of the bond on the maturity date. For a stock, the face value is the original value of the stock as determined by the company when it was issued, and it is also known as the par value or the nominal value.

The face value of a financial instrument does not necessarily reflect its market value, which is the current value of the instrument as determined by supply and demand in the market.

Difference between face value and price

The difference between the face value and price of a product is determined by the forces of supply and demand. Basically, face value is the original cost of a good or service minus any discounts, while the price is the amount that people are willing to pay based on what they perceive its worth to be. A product can sell for more than its face value if there is an increased demand from customers, or it could end up selling for less if the market is flooded with similar offerings.

Par Value vs Face Value

The terms face value and par value are often confused as they seem to refer to the same thing. However, there is a subtle but important difference between them. The face value of a stock is the amount stated on the certificate and it has no relation with the actual market price. On the other hand, par value is decided by the company that issues stocks and it sometimes reflects the underlying value of a stock in certain cases like bankruptcy liquidation. Furthermore, both face value and par value may not be identical for different stocks.