What is the difference between face value, market value and book value of a stock?
Face value is the original value of the stock which is shown in the share certificate at the beginning when the company gets listed in the stock market.Face value of a share does not change and stays constant.For example, the face value of shares of Infosys is INR 5.Market value is the total value of the company.Market value is calculated by multiplying the total number of shares outstanding with the current market price of a share.For example, the total number of shares outstanding for ABC company is 50,000 shares and the current market price is INR 200.Thus, the total market value of the company is INR 10000000.Book value of stock is the value of the company based on the total amount the company owes to its shareholders. It is calculated by dividing the total amount the company owes to the shareholders by the total number of shares.The total amount the company owes to the shareholder is called Sareholders Equity.Thus, if the Shareholders equity is INR 100 crores and the number of shares outstanding is 5 crores, the book value of shares is INR 20 per share.FLIP's Wealth Advisor Program beautifully covers the basics of stocks and the related terminologies. For the best certification programs in Banking and Finance, check Largest e-learning and certification offering in BFS, in India
The par value of stock refers to its value on the open market. True or False?
False Par value stock has no relation to market value and, as a concept, is somewhat archaic. The par value of a share of stock is the value stated in the corporate charter below which shares of that class cannot be sold upon initial offering; the issuing company promises not to issue further shares below par value, so investors can be confident that no one else will receive a more favorable issue price. Thus, par value is the nominal value of a security which is determined by the issuing company to be its minimum price. This was far more important in unregulated equity markets than in the regulated markets that exist today. The par value of stock remains unchanged in a bonus stock issue but it changes in a stock split. Par value also has accounting purposes. It allows the company to put a de minimis value for the stock on the company's financial statement.
What is the difference between fair value, market value and carry value?
Some people use fair value and market value as a same thing but there is difference between these two terms.Fair value is the price at which asset is exchange between knowledgeable parties at arm's length transaction.Market value is price at which the asset is exchange between parties in the market.The term knowledgeable makes the difference here let me explain it, if you want to buy an asset and you do not have knowledge about the price of the asset the owner can deceive you and can charge you more but if you have knowledge about it then you can say that I have bought this asset at fair value.Carrying value on other hand is the price of an asset which is recorded in books of account at cost minus any accumulated depreciation.
What is difference between the a share of stock's par value and its nominal value?
The "par value" of a share is a baseline amount of money invested per share of stock in a company when it was first incorporated, an artifact that exists for historical and technical purposes. Kind of like the way you can't open a bank account without putting at least a little money in there so you make a $100 deposit, or sell a piece of land for free so you sell it for a dollar. There has to be at least a little value to shares for the traditional transactions involved in setting up a company to work and avoid some edge effects that come when the price is zero. So most companies start out with a very low par value per share, in the US often $0.0001 or $0.00001.Whereas par value is an actual attribute of the shares, "nominal" is an adjective that just means that the price is low. Nominal means roughly "in name only", the actual price is so low it doesn't make any difference to anybody. If something has a nominal price, it's like the $1 price to buy a piece of land, it's just there for technical reasons, not financial ones.
Bonds Retirement and Par Value Questions?
I was working on accounting problems and couldn't figure out three problems. Clark Company purchased 40% of Irene Company's stock for $125,000 on January 1. On May 20 of the same year, Irene Company declared total cash dividends of $30,000. At year-end, Irene Company reported net income of $150,000. The balance in Clark Company's Long.Term Investment in Irene Company as of December 31 should be: A) $ 77,000. B) $245,000. C) $173,000. D) $185,000. E) $197,000. The correct answer is (C). Michael Company issued 8% bonds with a par value of $1,000,000, receiving a $20,000 premium. On the interest date 5 years later, after the bond interest was paid and after 40% of the premium had been amortized, the corporation purchased the entire issue on the open market at 99 and retired it. The gain or loss on this retirement is: A) $0 . B) $10,000 gain. C) $10,000 loss. D) $22,000 gain. E) $22,000 loss. The correct answer is (D). Matthew Company issued 10-year, 7% bonds (paying semiannual interest) with a par value of $100,000. The market rate of interest when the bonds were issued was 6%. Compute the price of the bonds when they were issued. A) $107,360.70 B) $93,206.05 C) $107,441.25 D) $93,290.70 E) $107,018.80 The correct answer is (C). Can you please explain how those answers are right?
What is the difference between face value and par value?
Breaking It DownThe par value of a bond can also be thought of as the amount of money to be paid to the purchaser at bond maturity. Generally, bonds are issued with par values of either $1,000 or $100. If an investor purchases a bond with a $1,000 par value and a maturity date set five years down the road, then the issuing entity is required to pay the investor, or bondholder, $1,000 after the five years has passed.The face value of a share of stock is the value per share as stated in the issuing company's charter. This is the minimum value that each shareholder is expected to pay per share of stock in order to fund the business. This value is usually quite low – nearly $0 per share – to protect shareholders from liability in the event the business is not able to meet its financial obligations.Face value is typically an arbitrary number agreed upon by the issuer, which is usually indicated on the company's balance sheets. The face value, while arbitrary in appearance, is determined by companies so they can get real numbers for growth and projected needs. For example, if the issuer needs to have a factory built that has a cost of $2 million, it may price stocks at $1,000 and issue 2,000 of them to raise the needed funds. The value of the stocks increases as the issuer begins to turn quarterly profits and sees returns on the investments generated by investors purchasing the stocks.While the face, or par, value of these securities is important, it has little bearing on the price an investor must pay to purchase a bond or a share of stock, called the market value. The market value of stocks and bonds is determined by the buying and selling of securities on the open market. The selling price of these securities, therefore, is dictated more by the psychology and competing opinions of investors than it is by the stated value of the security at issuance.For more questions, any help or something other about Stock market and Trading, you just can contact us here with a comment or in our website [In my biography]Read more: What is the difference between par value and face value?
Can the company issue shares below the face value of its shares?
In India it can. If a company issues shares below face value it will be called as shares issued at discount. But this rarely happens.Mostly companies issue shares at huge premium. For example an airline INDIGO while going public, issued shares of face value 10 Rs. at 765 Rs.Face value doesn’t mean a lot. What you really should look is the earnings of a company and its consistency. See if the company doesn’t have much debt and has positive cash flows.While buying any shares during an IPO or from secondary market you should always do the fundamental research and not buy just because the shares are being issued at discount.Happy investing!
What is the difference between face value and issue price?
To put it simply,Face value-is the value of share on which company calculates & pay dividend & other benefits to the shareholders.Issue price- is the price at which shares has been issued in secondary market.Face Value is the stated value of a given stock and a company cannot sell any stock below this price.This is mostly symbolic and has no real significance in the secondary market. Companies however declare dividend as a percentage of face value.In India the face value is mostly Rs 10/-. When a stock is split, the face value of the stock is also split.Issue price is the price at the which a stock is issued.The price difference between issue price and face value is the premium on the stock.Face Value can be considered as the base value of each share for understanding purposes.This is the price which excludes all premium or discount if any. But Face Value is important for all calculations regarding dividend.Issue price includes the premium content and deducts discount from the face value.Eg- A company offers to the its 1000 shares of 200 each at premium of 2%. now the face value of 1 share is 200 but the issue price is 204. Here the premium is 4 which is added to the face value to get issue price.Here if any dividend is given later then it would b calculated on 200 and not 204.I hope you find my explanation helpful.:)
How is the NSE/BSE Stock open Price determined?
A couple of factors determine the opening price of a stock:1. Demand and supply for a stock (major factor)2. Previous day’s closing price (used as reference point in some cases)Before we move into how the opening price is computed, let’s understand the timeline of the pre-open session.Pre-open sessionPre-open session is a 15-minute long session (9:00 AM to 9:15 AM), which helps in the discovery of opening prices of stocks.It has three parts:Opening priceThe pre-open session begins with intake of orders from market participants. Then, the matching of buy and sell orders is carried out by the stock exchange in order to arrive at the opening price. The opening price, also known as equilibrium price, is computed such that a maximum number of shares get traded based on the buy and sell orders received. This method is known as call auction.I will try to explain the method using an example to make it easy for everyone to understand.So let’s use State Bank of India as an example. Let’s say that SBI closed at 274 in the previous session. In today’s session, the exchange has received multiple orders for the stock and we will consider the below as the order book for SBI at 9:08 AM, which marks the end of the pre-open session.Going by the above order book, we have a single price at which both buy and sell orders can be matched. The equilibrium price for SBI is 275, since this is the price at which maximum number of shares can be matched. Hence, the opening price of SBI will be 275.The above example is a simple scenario. In reality, we may have situations where there is:1. More than one price point with same matched quantity: The opening price will be the price at which the imbalance quantity is the minimum.2. More than one price point with same matched quantity and same imbalance quantity: The opening price will be the price which is nearer to the previous day’s closing price.3. No price discovery in pre-open session: In cases when there is no price discovery in the pre-open session, the price for the first trade in the normal market shall serve as the opening price. This could happen at times when there are no limit orders for a stock and hence opening price would not get discovered.I hope you found the answer useful.