What is par value?

What is par value?

• A. The market value of the share
• B. The nominal value assigned to a share in the charter
• C. The total paid-in capital per share
• D. The book value per share

Answer: (B)

Par value is the nominal amount assigned to a share in the corporate charter. It represents the legal capital per share that the company must retain, created for regulatory and accounting purposes. It is not the price at which the stock trades (market value), nor the stock’s book value (owners’ equity per share). It is also not the total paid-in capital per share, which would include any amount paid above par value as additional paid-in capital. In practice, par value is usually a small figure or even zero for some stock, and it mainly matters for accounting and legal considerations rather than valuation.

Par value is the nominal amount assigned to a share in the corporate charter. It represents the legal capital per share that the company must retain, created for regulatory and accounting purposes. It is not the price at which the stock trades (market value), nor the stock’s book value (owners’ equity per share). It is also not the total paid-in capital per share, which would include any amount paid above par value as additional paid-in capital. In practice, par value is usually a small figure or even zero for some stock, and it mainly matters for accounting and legal considerations rather than valuation.