What is a 'Nominal Value'
A nominal value is the stated value of an issued security. Nominal value – also known as face value or par value in reference to securities – disregards an item's market value. Measurements of economic growth and personal income that do not adjust for inflation are nominal values, while measurements that adjust for inflation are real values.
BREAKING DOWN 'Nominal Value'Nominal value is typically not calculated, as it is the stated rate of interest. The nominal value is stated on the face of a tangible security or included in the prospectus. No changes need to be made to be made to this printed rate, as this reflects the nominal rate. When presented with a real rate or real value, the nominal rate is derived from adding the real rate to the inflation rate. For example, if real gross domestic product (GDP) growth is 4% for a given year and the related annual inflation is 2%, the nominal growth rate for the year is 6%.
Nominal Values in Economics
Nominal values are used extensively in economics. These values are expressions of monetary terms for a specific period without changing the figure for inflation. Nominal values in economics allow for comparisons to be drawn regarding actual changes in price or growth. Although the unadjusted figures have less comparability across large spans of time than real values, nominal values display results with less estimations and more precision to the actual overall economy.
Nominal Value Regarding Securities
The nominal value of a company's stock is an arbitrary value assigned for balance sheet purposes. This nominal value is referred to as the par value of the stock. The value of the stock is accounted for by using two financial accounting accounts: equity – par value and equity – excess of par value. For stocks, the par value is simply an accounting aid. For bonds, the nominal value reflects the total amount required to be returned to the bond holder at the bond's maturity. Corporate bonds typically have a nominal value of $1,000, municipal bonds typically have a nominal value of $5,000, and government bonds usually have a nominal value of $10,000.
Usefulness of Nominal Values
Nominal values are useful in the application of projecting and anticipating future costs and revenues. For example, a company may wish to forecast rent for the next few years. The actual amount of rent paid is necessary information, as the lease payment to the landlord will not be adjusted due to inflation. The actual cash flow that occurs is valuable information captured by nominal values. The current amount of rent being paid now could be utilized in future years as an estimated expense.