Nominal value definition
/What is Nominal Value?
Nominal value is the face value of a security. This amount is printed on the front of the security certificate. For example, the nominal value of a share of common stock with a par value of $0.01 is $0.01. A common nominal value for a bond is $1,000, which is also the amount that the issuer will pay to bond holders when the bond matures. Higher nominal values are usually associated with the bond offerings of government entities. The nominal value of a share is usually significantly less than the amount that an investor can expect to receive from owning the share.
Nominal Value vs. Market Value
There are several differences between nominal value and market value, which are as follows:
Basis of valuation. The market value of a security will vary in accordance with supply and demand, while nominal value is set when a security is created.
Fluctuation. Market value is usually much higher than the nominal value of a share, while it may be higher or lower than the nominal value of a bond, depending on market interest rates. Conversely, the nominal value of a security is fixed.
Use case. Nominal value is used when accounting for a security, while market value is used when trading it.