Face Value
Face value is the nominal value of a financial instrument, like a bond or a stock, as stated on the instrument itself. It is the initial value of the security when it is issued by the company or government.
Example #1
For a bond with a face value of $1,000, the issuer promises to repay the bondholder $1,000 at maturity.
Example #2
If a stock has a face value of $1, it means the shareholder paid $1 for the stock when it was initially issued.
Misuse
Misuse of face value can occur when deceptive companies assign an artificially high face value to a security to attract investors. This can mislead investors into thinking the security is more valuable than it actually is. It's crucial to protect consumers against such practices by promoting transparency and educating them on how to evaluate the true worth of a security beyond its face value.
Benefits
Understanding the face value of a financial instrument helps investors assess its worth and make informed decisions. It provides a clear reference point for calculating returns and determining the principal amount to be repaid at maturity.
Conclusion
By grasping the significance of face value, consumers can better comprehend the true value of securities they invest in, thus enabling them to make sound investment choices. CAP advocates for transparency in financial markets to ensure that consumers are empowered with accurate information to protect their financial interests.