what is a nominal value 
nominal value of a security often referred to as face or par value is its redemption price and is normally stated on the front of that security with respect to bonds and stocks it is the stated value of an issued security as opposed to its market value in economics nominal values refer to the unadjusted rate or current price without taking inflation or other factors into account as opposed to real values where adjustments are made for general price level changes over time understanding nominal valuenominal value is a critical component of many bond and preferred stock calculations including interest payments market values discounts premiums and yields nominal value of common stock will usually be much lower than its market value due to supply demand considerations while the nominal value of preferred stock should be more in line with its market value the nominal value of a bond will vary from its market value based on market interest rates nominal and real values also play a vital role in economics whether it takes into account nominal gdp versus real gdp or nominal interest rates versus real interest rates real values factor in the changes in purchasing power while the nominal rate of return reflects an investor s earnings as a percentage of their initial investment the real rate of return takes inflation and the actual buying power of the investor s earnings into account investopedia michela buttignolnominal value of bondsfor bonds the nominal value is the face value which is the amount repaid to the bondholder at maturity corporate municipal and government bonds typically have face values of 1 000 5 000 and 10 000 respectively if a bond s yield to maturity ytm is higher than its nominal interest rate coupon rate then the real value of the bond will be lower than its face nominal value and the bond is said to selling at a discount to par or below par conversely if the ytm is lower than its nominal interest rate then the real value of the bond is higher than its face value and it is said to be selling at a premium to par or above par and if they are the same then the bond is selling at its nominal or par value zero coupon bonds are always sold at a discount to nominal value because the investor does not receive interest until the bond matures the formula for calculating bond market value is bp coupon payments 1 market yield i face value 1 market yield n where bp bond price coupon payments face value coupon rate i each year n number of years begin aligned text bp frac sum text coupon payments 1 text market yield i frac text face value 1 text market yield n textbf where text bp text bond price text coupon payments text face value times text coupon rate i text each year n text number of years end aligned bp 1 market yield i coupon payments 1 market yield nface value where bp bond pricecoupon payments face value coupon ratei each yearn number of years for example a 3 year corporate bond issue with face value of 1000 and a coupon rate of 10 the annual coupon payments would be 100 1000 10 if the market rate ytm is higher than the coupon rate say 12 then the market value of the bond would be selling at a discount to par less than 1000 bond price 100 1 12 100 1 12 2 100 1 12 3 bond price 1000 1 12 3 89 29 79 72 71 18 711 79 951 98 begin aligned text bond price frac 100 1 12 frac 100 1 12 2 frac 100 1 12 3 phantom text bond price frac 1000 1 12 3 89 29 79 72 71 18 711 79 951 98 end aligned bond price bond price 1 12 100 1 12 2 100 1 12 3 100 1 12 3 1000 89 29 79 72 71 18 711 79 951 98 nominal value of stocksthe nominal value of a company s stock or par value is an arbitrary value assigned for balance sheet purposes when the company is issuing share capital and is typically 1 or less it has little to no bearing on the stock s market price for example if a company obtains authorization to raise 5 million and its stock has a par value of 1 it may issue and sell up to 5 million shares of stock the difference between the par and the sale price of stock is called the share premium and may be considerable but it is not technically included in share capital or capped by authorized capital limits so if the stock sells for 10 5 million will be recorded as paid share capital while 45 million will be treated as additional paid in capital preferred stocks are hybrid assets which pay dividends and may be converted to common stock the nominal par value is quite important here as this is the amount used to calculate the dividend for example a company issuing a 5 preferred stock with a par nominal value of 50 would be paying dividends of 2 50 5 50 per share annually the preferred stock s price will depend on the market s assessment of the dividend percentage being offered in this case 5 if the market is satisfied with 5 then the stock will trade around its nominal par value if the dividend percentage is higher or lower than market expectations then the preferred stock s price will trade at a higher or lower price than its nominal value nominal value in economicsin economics nominal value refers to the current monetary value and does not adjust for the effects of inflation this renders nominal value a bit useless when comparing values over time it is for this reason that investors prefer real values which factor in inflation to give a relative comparison that is more accurate and understandable real rate is the nominal rate minus the inflation rate real rate nominal rate inflation rate text real rate text nominal rate text inflation rate real rate nominal rate inflation ratefor example if nominal gross domestic product gdp growth rate is 5 5 for a given year and the related annual inflation rate is 2 then the real gdp growth rate for the year is 3 5 nominal vs real exchange ratesthe nominal exchange rate is the number of units of the domestic currency that can purchase a unit of a given foreign currency the real exchange rate is defined as the ratio of the foreign price level to the domestic price level where the foreign price level is converted into domestic currency units via the current nominal exchange rate in contrast to the nominal exchange rate the real exchange rate is always floating because even in fixed exchange rate regimes the real exchange rate changes as inflation changes 