In investing, the term above par is used in reference to purchases or sales of bonds or other securities which have a face value at prices higher than their face value.
There are a number of reasons why securities may be sold above par. A bond may be sold for more than its face value if the creditworthiness of its issuer is upgraded. A preferred share may be purchased above its nominal value if the company which issues it gains in value or begins to pay out high dividends.
Securities may also be sold at par (for a price equal to its face value) or below par (for a price lower than its face value).
Example: You pay 5000 Swiss francs for a top-rated bond with a face value of 5000 francs, an 3% annual interest rate and a 20-year term. 4 years later, interest rates for top-rated bonds have fallen to just 1% per annum, making your bond exceptionally valuable. An investor offers you 6000 Swiss francs for the bond in hopes of holding it for the remaining 16 years and receiving the remaining 2400 francs of interest in coupon payments. This deal is profitable for the investor because although they are paying 1000 francs more than the face value of the bond, they will still earn 1400 francs in yields above the extra 1000 francs they invest. If they were to take out a 16-year bond at 1% interest, they would earn just 800 francs in yields over the same term. In this case, you can sell the bond above par – above its face value.
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