“Face value” typically refers to a financial instrument’s nominal or stated value, such as a coin, banknote, bond, or stock. It is the value that appears on the face of the instrument, and it is often the amount that is paid or redeemed at maturity. The actual or fair market value may be higher or lower but is typically lower. For example, a bond’s face value is the amount it will be worth when it matures, and the face value of a stock is the nominal value assigned to each share.
In a broader sense, “face value” can also be used in everyday language to describe the apparent or superficial value of something, separate from its intrinsic or true value. For instance, if you take a statement or promise at face value, you accept it as authentic or genuine without further analysis or skepticism.
In finance, the market value of a financial instrument may differ from its face value due to various factors such as interest rates, market conditions, and the perceived creditworthiness of the issuer.
For bonds, face value is the amount the bond will be worth when it matures. It is the principal amount that the bond issuer agrees to repay to the bondholder when the bond reaches its maturity date. The interest payments on the bond are typically calculated as a percentage of the face value.
For stocks, face value is an arbitrary amount assigned to a share by the company when it is issued. However, unlike bonds, the face value of a stock is less significant. Instead, investors are more concerned with the stock’s market value or current price.
In the context of life insurance, face value refers to the death benefit or the amount of money the beneficiary will receive when the insured person dies. This amount is predetermined when the policy is issued.
It is required to distinguish between face value and market value. The market value is the current price at which a financial instrument can be bought or sold in the market. For bonds, changes in interest rates can cause the market value to fluctuate above or below the face value. Stocks are traded at market values determined by supply and demand in the stock market.
