What is Above Par?
When a bond's price is above par, the bond is selling at a premium above face value.
How Does Above Par Work?
In the bond world, par is the face value of a bond. That is, the par value is the amount the issuer promises to pay the bondholder when the bond matures. For equities, the par is a very small, arbitrary value assigned to each share.
Let's assume Company XYZ issues $10,000,000 in bonds to the public. It may do so by issuing 10,000 bonds, each with a $1,000 face value. That means that when each bond matures, the holder will receive the par value of $1,000. Most corporate bonds have $1,000 face values, but municipal bonds often have $5,000 par values and federal bonds often have $10,000 par values.
The par values for stocks are typically $0.01 per share and are set forth in the issuer's articles of incorporation. For preferred stock, however, par values may be higher because they are often used to calculate dividends.
Why Does Above Par Matter?
For bonds, par is a pricing benchmark. When the bond's price is below par, the bond is considered 'discounted'; when the bond's price is above par, the bond is considered 'at a premium.'
