Face value, also known as nominal value or book value, is the declared value of an asset at a specific time. It is often used to calculate the real value of an asset and can be different from the market value. Par value is sometimes used interchangeably with face value, but it refers to the currency value of a security determined by the issuing company. In fixed income collateral, face value represents the current worth of the security.
Also known as face value or book value, face value is the declared value of an asset as it stands in a specified period of time. This type of security identification is used in many different applications and can be related to the prices associated with securities or other assets. In most settings, face value is different from real value, which is the value of the asset adjusted to allow for inflation.
With investing activity, par value is sometimes identified as face value. In this application, the term refers to the currency value of a security based on the price that the issuing company has determined for the asset. It has nothing to do with what is perceived as the market value of the security. An exception would be with a bond issue for which the issuer sets the purchase price at less than face value, due to the fact that the bond will be worth face value at maturity of the instrument.
In any situation involving a fixed income collateral, face value is likely to be identified as face value. Here, face value represents what that security is worth today. If the security has earned some type of real rate of return since its purchase, that value will be greater than the purchase price. In situations where the security is trading at a lower price per unit than at the time it was purchased, the current face value is less than the original purchase price.
Other terms may be used instead of nominal value, depending on the configuration. When referring to the value of capital assets, face value is often referred to as book value. This is commonly seen in the used car business, where both buyers and sellers will be less concerned with the original cost of the vehicle and more focused on what that vehicle is considered to be worth today.
Identifying face value is often helpful because it serves as the basis for calculating the real value of an asset. For example, assuming that an asset sold for $500.00 United States Dollars (USD) in 1995, and has not suffered depreciation, it would be possible to adjust that figure by allowing for inflation and determining the actual value of that asset in 2005, 2006, or any year. apart from 1995. From this perspective, the price or nominal value is considered as the factor that established what is considered the standard or the starting point to identify the real value of an asset at any other time.
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