Par Value of Common Stock - CFA® Level 1 Exam | Test Prep

Par Value of Common Stock

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Question

The par value of a common stock represents

Answers

A. the estimated market value of the stock when it was issued.

B. none of these answers.

C. the liability ceiling of a shareholder when a company undergoes bankruptcy proceedings.

D. the total value of the stock that must be entered in the issuing corporation's records.

E. the amount that must be recorded on the issuing corporation's record as paid-in capital.

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Explanations

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A. B. C. D. E.

Par value represents a stock's legal capital. It is an arbitrary value assigned to stock before it is issued. Par value represents a shareholder's liability ceiling because, as long as the par value has been paid in to the corporation, the shareholder obtains the benefits.

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