Expert: Paul Henneman - 1/23/2009

Question
QUESTION: This is not a homework question!
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Sorry, but I don't answer homework questions..

Your Question was:

Hello:

Did all stocks use to have a par value, or do all stocks still have a
par value; if so, what does "par value" represent?

I thank you for your reply.

Expert: Paul Henneman


ANSWER: Thank you for your question!
   Yes, all stocks generally have a par value. Historically, par value has been the original investment amount, usually measured per share.  In more recent times par value is an assigned amount.  Here is a definition from Barron's Dictionary of Financial and Investment terms:

"... it is an assigned amount (such as $1 a share) used to compute the dollar accounting value of the common shares on a company's balance sheet. Par value has no relation to market value, which is determined  by such considerations as net asset value, yield, and investors' expectation of furture earnings." p. 432

Typically par value is of great concern for bonds than stocks. For bonds, the base value must be determined for the percentage interest for the bond to be paid to the holder. Preferred dividends  for preferred stock holders are also usually paid as a percentage of the par value.  (see page 432 for more on this).

I hope this helps. Please do not hesitate to follow up with me if I can be of any additional service,

Sincerely,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com


---------- FOLLOW-UP ----------

QUESTION: Hello:

I want to thank you for the reply and answer.

What is the typical par value amount for stocks, and how is this amount determined?


I thank you for your follow-up reply.


Answer
Kenneth,
   Thank you for the follow up!
Par value can really be any assigned number, such as one dollar, or one cent. There is no real typical par value, but it generally is a number that allows for easy computation for percentages of a whole, such as the one cent or one dollar amount I mention. I found a bit longer explanation for you on wikipedia.com regarding the amount par value that is assigned, see here:
http://en.wikipedia.org/wiki/Par_value
   Typically the board of directors set the par value when the shares are originally issued.

I hope this helps! Please do not hesitate to follow up with me if I can be of any additional service,

Sincerely,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com