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NISM Certifications · NISM-Series-XV: Research Analyst · Terminology in Equity and Debt Markets

A company's shares have a face value of Rs 10 and are trading at Rs 250 in the market. Which of the following correctly describes the difference between the two values?

Face value is the nominal value of a share, here Rs 10, and is used to express dividends as a percentage. Market price, Rs 250, is determined by demand and supply on the exchange, so it exceeds face value by Rs 240.

  1. AMarket price is Rs 240 above face value, and the face value is the basis for computing dividend percentage declaredCorrect
  2. BFace value changes every day with the market price
  3. CFace value is the price at which shares are traded on the exchange
  4. DMarket price is always fixed by the company's board

Explanation

Face value (par value) is the nominal value fixed at issue and is used to express dividends as a percentage, while market price is set by demand and supply. Here the gap is 250 - 10 = Rs 240. The other options misstate how face value and market price work.

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