Listen to a Business English Dialogue About Par value
Samantha: Hi Allison, do you know what “par value” means in finance?
Allison: Hi Samantha, yes, par value is the nominal value of a security, usually set when the security is issued.
Samantha: Right, it’s like the face value of a bond or the stated value of a stock, isn’t it?
Allison: Exactly. It helps determine the minimum price at which a security can be issued or traded.
Samantha: So, if a bond has a par value of $1,000 and it’s trading below that, it’s selling at a discount?
Allison: That’s correct. If it’s trading above $1,000, it’s selling at a premium.
Samantha: Got it. Par value also affects how much interest a bond pays, right?
Allison: Yes, that’s correct. The interest rate, often referred to as the coupon rate, is usually based on the par value.
Samantha: So, if a bond has a 5% coupon rate and a par value of $1,000, it would pay $50 in interest annually?
Allison: Exactly. The coupon rate is typically a percentage of the par value, so in this case, it would pay $50 per year.
Samantha: Thanks for explaining, Allison. It’s clearer now how par value works in finance.
Allison: No problem, Samantha. Understanding par value is fundamental to understanding how bonds and other securities function in the market.