Peregrine Foundations of Business Finance 2025 – 400 Free Practice Questions to Pass the Exam

Question: 1 / 400

How is par value typically characterized?

It reflects the actual market value of shares

It is often a nominal amount set during initial stock offerings

Par value is typically characterized as a nominal amount set during initial stock offerings. This amount is established when a corporation issues shares and represents a legal minimum price at which the shares can be sold. It's important to note that par value does not reflect the current market value of the shares, which can fluctuate significantly based on supply and demand, among other factors.

The concept of par value serves more of a formal or legal function rather than a financial one; it does not directly indicate the value of the company or the actual worth of the shares to investors. Because par value is often set at a very low amount, it allows companies to issue stocks at a price much higher than the par value, thus raising capital without being tied to the nominal figure established at the outset.

Get further explanation with Examzify DeepDiveBeta

It represents the total equity of the firm

It indicates the reinvested earnings of the company

Next Question

Report this question

Download Peregrine Foundations of Business Finance 2025 – 400 Free Practice Questions to Pass the Exam PDF Study Guide
Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy