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What is the significance of par value on a preferred stock? What is the significance of...

What is the significance of par value on a preferred stock? What is the significance of par value on a common stock?

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Answer #1

par value for prefered stock :

The par value of a share of preferred stock is the amount upon which the dividend is calculated.

for example: If par value of the stock is $1000 and dividend is 10%,then issuing entity has to pay $100 as prefered dividend per preferred share.

par value is an arbitrary fixed per share amount assigned to a stock by the incorporates.

par value on a common stock :

par value is the stock share's nominal price.It is the price at which corporations initial shares are sold to the public and it is a promised value in that the corporation will not issue additional shares at a price less than that.

par value is significant in issuing the dividend to the shareholders.company will issue dividend on par value .

For example: par value of a share is $5 ,if company issuing dividend of 50%,it means that $5*50%=$2.5 per share is the dividend amount.

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