Must Knows

Face value: All you need to know

[ecis2016.org] The face value of a share is the unit’s value when it was listed on the stock exchange for the first time

What is face value?

Face value is the value attributed to a share or stock or bond, when it is first issued. In the Indian stock market, the face value of a share is just the value in rupees written on its certificate. That’s the cost you will be told if you want to purchase or sell shares on an Indian stock market.

What is the face value of a share?

The face value of a share is the business’s net worth when the share was listed on the stock exchange for the first time. The face value of a share is the price at which it would be purchased or sold. The current cost of a business’s shares will differ from the face value. The gap is made up of accrued interest (or dividends) because the price changed plus any fees charged by your broker to execute the trade.

Face value is also known as the par value. If you purchase shares in a corporation, they will pay you the par value, typically in the form of a check. That is how the term ‘stock’ originated, which initially meant ‘certificate proving ownership of shares’.

The face value does not reflect the current market price of the share. For example, if good news regarding an organisation’s products were published, its market value would rise. If bad news about an organisation’s products were to be revealed, its market value would fall.

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Importance of face value

Face value is very important in the world of investment, stock exchanges, bonds and shares, as it helps to evaluate the market value, investments and returns on investments, and premiums on the instrument.

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Does the face value of a stock fluctuate?

The face value of stocks might fluctuate due to business actions such as stock splits. In the event of stock splits, the original shares are divided into subunits with a lesser face value. For example, if an organisation with a face value of Rs 20 per share announces a 1:1 stock split. It means that one current stock has been divided into two units with face values of Rs 10 each. A stock split is a method of increasing liquidity and realising the true worth of an organisation’s shares.

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What is the difference between face value and market value?

As previously stated, the face value of shares and bonds is the initial price stated by its owner. Market value, on the other hand, is determined by market fluctuations. As a result, the market value of a stock can change greatly from its initial value. This also means that, while face value is set by the corporation and is unaffected by market volatility, market value is heavily influenced by market movements.

Source: https://ecis2016.org/.
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Debora Berti

Università degli Studi di Firenze, IT

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