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A half stock is termed as a security that is sold with a par value, which is 50% of what is regarded to be the basic, standard price. The Par value is the bond’s Face Value, or in some situations, the face value of the stock as well.
Half stocks can either be preferred stocks or common stocks and act as a regular stock share, other than the decreased par value.
The share valuation of common stock is generally the same for both a half stock and a regular stock share, considering that much of the stock’s value is linked to the potential of growth. Par value is definitely an essential Factor that helps to comprehend the dividend of a share of stock, turning it even more important for the preferred stock.
Moreover, preferred stock may also have a higher claim on the liquidated company’s proceeds, generally equal to the par value. A half stock share of the preferred stock may get less in terms of liquidation.
Most commonly, the term par value is used in Bonds, meaning the bond’s face value, demonstrating the lender’s or the investor’s principal amount lent to the issuer or the borrower. As far as stocks are concerned, they also get a par value; however, the number is generally arbitrary and small. Typically, preferred stocks get high value as they are used to calculate dividends.
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Let’s take a half stock example here. Consider that a half stock has a par value that is generally half of what is regarded as normal. Thus, let’s assume that the par value of an e-commerce company’s preferred stock is Rs. 100.
But the company decided that it also wishes to issue a few half stocks. Now, the half stock is still regarded as the preferred stock and is ranked higher on the priority ladder in comparison to common stocks.
However, since it is half stock, it will be paying a lesser dividend to shareholders and provider the owners lesser claims on assets if the company would declare Bankruptcy and would have to liquidate.
Now, this e-commerce company will issue preferred stock with a par value of Rs. 50, making it a half stock.