Nominal (Face) Value versus Market Value

Every share or unit of stock has two different values attached to it, and keeping them apart is the foundation of the whole chapter.

Nominal value (face value / par value). This is the value fixed by the company at the time of issue and printed on the certificate — say ₹100 or ₹10. It never changes over the life of the security. The dividend or interest is always calculated on this nominal value, never on the market price. So a 10% dividend on a ₹100 share is always ₹10, whatever the market price happens to be.

Market value (market price). This is the price at which the security is actually bought or sold in the stock market on a given day. It changes constantly with demand, the company's performance and general market conditions. The amount a person invests (or receives on sale) is always based on the market value, not the face value.

The market value can stand in one of three relationships to the face value:

• At par — market value equals face value ($MV = FV$). A ₹100 share quoted at ₹100.
• At a premium (above par) — market value is greater than face value ($MV > FV$). A ₹100 share quoted at ₹120 is at a premium of ₹20.
• At a discount (below par) — market value is less than face value ($MV < FV$). A ₹100 share quoted at ₹90 is at a discount of ₹10.

The two golden rules that follow from this, used in every remaining section:

$\text{Amount invested} = \text{Number of shares} \times \text{Market Price per share}$ …