Par value is adjusted annually to reflect the current market value of the stock.

Question

Quizplus · Accepted Answer

The statement "Par value is adjusted annually to reflect the current market value of the stock" is not accurate. Par value, also known as nominal value or face value, is a legal term used to describe the minimum price at which shares can be issued by a corporation. It is assigned when the company is first established and is typically set at a very low amount, such as $0.01 or $1.00 per share.
Once the par value is set, it does not change to reflect the current market value of the stock. The market value of a stock is determined by the supply and demand for the stock in the market and can fluctuate significantly over time, often daily. The market value is the price at which the stock trades on a stock exchange.
In contrast, the par value is mostly an accounting artifact and has little to do with the actual worth of the company's shares on the open market. It is used to calculate the minimum legal capital that must be maintained by the company and can have implications for the company's ability to pay dividends or issue new shares.
In modern corporate practice, especially in the United States, the concept of par value has become largely symbolic, with many companies setting the par value of their shares at a minimal amount to avoid the complexities and potential legal issues associated with a higher par value.
In summary, par value is a static figure that does not change to reflect market conditions, whereas the market value of a stock is dynamic and changes according to the performance of the company, investor sentiment, and broader market trends.

Par Value Is Adjusted Annually to Reflect the Current Market