Issuance market value

Both common and preferred stocks normally have a par, or nominal, value. In the case of common stock, the market value at the time of issue usually differs from the par value. Stock can be issued either at a premium or at a discount, depending on prevailing economic conditions and the strength of the company. The difference between the actual amount paid and the par value is listed in the stockholders -equity section of the balance sheet, as shown in Table 9-23. The issuance of stock at a premium or a discount is done to protect existing stockholders. 

EXHIBIT 25.4 Market Value of Long-dated Sterling Issuance 1991-2002 ( million)... 

When an option-free bond is issued, the coupon rate and the term to maturity are fixed. Consequently, as yields change in the market, bond prices will move in the opposite direction, as we will see in the next two scenarios. Generally, a bond s coupon rate at the time of issuance is set at approximately the required yield demanded by the market for comparable bonds. By comparison, we mean bonds that have the same maturity and the same risk exposure. The price of an option-free coupon bond at issuance will then be approximately equal to its par value. In the example presented above, when the required yield is equal to the coupon rate, the bond s price is its par value ( 100). 

To illustrate, we will value the same hypothetical 4-year floater assuming that the required margin is now 20 basis points. For this to occur, some dimension of the floater s risk or the market must have increased since the floater s issuance. Now in order to be reset to par, our floater would hypothetically have to possess a coupon rate equal to 3-month LIBOR plus 20 basis points. Since the quoted margin is fixed, the floater s price must fall to reflect the market s perceived increase in the security s risk. 

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