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In: Finance

What is the difference between: FV Par Maturity Value M Face value $1,000

What is the difference between: FV Par Maturity Value M Face value $1,000

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Expert Solution

Two of the most important valuations are Face value and Maturity value.

Face value, also called Par value, refers to the stated value of the instrument at issuance.

Face value or Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. For bonds, it is the amount paid to the holder at maturity, generally $1,000. It is also known as "par value" or simply "par." Face value may be different from the security's redeemable value and selling price. Bonds that sell below their face value are "below par." Bonds that sell for more than their face value are "above par."

Face value or Par value for a share refers to the stock value per share as stated in the issuing company's charter. For stocks, it is the original cost of the stock shown on the certificate. This is the minimum amount that investors must pay per share in order to finance the company. This value is often very low to protect shareholders from financial liability if the company goes under.

Maturity value is the amount payable to an investor at the end of a debt instrument's holding period (maturity date). For most bonds, the maturity value is the face amount of the bond. For some certificates of deposit (CD) and other investments, all of the interest is paid at maturity.

An investment's maturity value is the face value plus any interest. Bonds that have higher risk levels tend to pay more interest, while more conservative bonds pay less interest.


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