Individual investors buy and sell corporate bonds and shares of stock on a daily basis. Stock and bond prices fluctuate based on company earnings, economic factors and dividend declarations. The value, or par value, recorded by the corporation varies from the selling price, or market value, of the stock or bond.
Market Value of Stock
Buyers and sellers determine the market value of each share of stock through the prices they're willing to sell for or to pay for each share. When the demand for a particular stock is greater than the supply of shares available, the price increases. Buyers choose to pay more to receive a share of stock. If the demand for that stock is less than the supply of shares, the price decreases — buyers aren't willing to pay as much for each share.
Market Value of Bond
Bond investors consider the interest rate attached to each bond and compare this to the current interest earned on similar securities when determining market value. If the interest paid on a bond is less than the current interest paid on similar bonds, the market value declines. If the interest paid is more than the interest paid on similar bonds, the market value increases.
Par Value of Stock
Corporations arbitrarily attach a dollar value, or par value, to each class of stock it issues. The corporation uses par value to record the shares issued in the financial records. The actual price received for the stock usually includes an amount greater than par value. The company records the amount received above par value as additional paid in capital. Par value never changes.
Par Value of a Bond
Par value for a bond refers to the face value or principal of the bond. The company pays this amount to the bondholder when the bond matures. The company calculates interest payments using the par value and the bond interest rate. The market interest rate has no impact on the par value or the interest payments made.
Bond Securities vs. Stock Securities
Stocks carry a higher risk than bonds for most investors. Bond ownership includes receiving regular interest payments and repayment of the principal balance when the bond matures. Bondholders become creditors to the corporation and hold a legal right to receive their money. Certain corporations pay dividends to stockholders, while other corporations keep their profits to fund future growth. Stockholders own a portion of the business indefinitely and receive no future payment for their investment. If a corporation liquidates, the bondholders hold a valid claim to receive their principal. Stockholders receive a distribution of the company’s assets if there's anything left after paying the company’s debts.