What is Face value?🔍
Face🙉 value is the current price✔ of a financial security🔐 as stated by the issuer. In the case of bonds, this is the amount paid💰💴 to the owner when the bond matures.
In the case of stocks, this is the price the owner paid for the stocks as indicated on the stock certificate.📃
Face value isn't necessary market price but rather the amount the issuer provides to the borrower or investor once maturity reaches.
Bonds and interest rate
In bonds, their market price📈📌 moves in line with the interest rate set by the central bank🏛. If that interest rate falls below the interest rate currently on the bond then the market price of the bond rises. If the central bank's interest rate rises above that offered on the bond then the market price of the bond falls. The face value on bonds is guaranteed but on stocks, it isn't.
For Stocks🌐🌎, the total face value of all stocks determines the cash reserves 🏗that must be kept in the business. Only the funds above that can be given off as dividends. There is, however, no requirement 😎⚠️ on how face value is determined for stocks so different companies use this as a way to reduce the cash reserves needed for their businesses. E.g Apple stock have a face value of 0.00001 per stock.🙄🤔🤔
Face Value and Market value
The face value of a stock or bond does not denote the actual market value. Market value is determined based on principles of supply and demand, often governed by what investors are willing to buy and sell a particular security for at a specific point in time. Depending on market conditions, the face value and market value may have very little correlation.⬆️↗️ Learnt something new today? Comment below🤗