Question

multiple choice question

common stocks par value is _______

the same as a bonds par value
an insignificant amount specified in the corporate charter
the same as the common stocks market price
the common stocks average price

Explanation:

Define common stock par value

Par value for common stock is an arbitrary, often nominal or insignificant dollar amount per share assigned to the stock in the corporate charter. It has no relation to the stock's actual market value or average trading price.

Evaluate the given options

• the same as a bond's par value: Incorrect. A bond's par value represents the principal amount to be repaid at maturity (typically \$1,000), whereas stock par value is a nominal legal value.
• an insignificant amount specified in the corporate charter: Correct. It is a nominal legal value (often \$0.01 or \$0.001 per share) established in the charter.
• the same as the common stock's market price: Incorrect. Market price is determined by supply and demand in the market and fluctuates constantly, while par value remains fixed and nominal.
• the common stock's average price: Incorrect. Average price is a historical trading metric, unrelated to the fixed par value.

Answer:

• the same as a bond's par value
• an insignificant amount specified in the corporate charter (Correct answer)
• the same as the common stock's market price
• the common stock's average price