A:

Nominal value is the face value of a consumer good or service. Real values compare the values of different goods and services or provide values that account for changes in value due to inflation. For example, a loaf of bread may have a nominal value of $2 and a real value of a bag of apples. The nominal value is expressed using a currency, and the real value is expressed using other goods. Real values are relative to the costs of other goods and services and may change more quickly than nominal values. A changing real value with a consistent nominal value may mean that inflation is not impacting the price of that item as much as another. The nominal value of a security is sometimes identical to the real value.

Nominal values are not as accurate as real values and do not reflect the latest market information. Real values often fluctuate more rapidly and are very sensitive to market conditions and supply and demand. With securities, many different real values apply when comparing one security with others. The nominal value may change to reflect these changes, but this is usually a gradual process that is not as responsive. Sometimes, the nominal value remains the same while the real price decreases dramatically. For example, a stock may have a nominal value of $100 that remains the same for 10 years. It has the same sticker price, but inflation reduces the value of the $100 and makes the security relatively cheaper when compared with other investments.

RELATED FAQS
  1. Under what circumstances is the nominal value out of line with the real value of ...

    Learn more about nominal stock values and market values. Explore causes of differences between nominal and real values for ... Read Answer >>
  2. How do nominal interest rates in finance differ from the nominal rate of interest ...

    Read about the subtle difference between a financial instrument's nominal interest rate of return and the general nominal ... Read Answer >>
  3. What is the Difference Between Real and Nominal Interest Rates?

    Learn about nominal interest rates and real interest rates and the difference between the two. Read Answer >>
  4. How does the Fisher effect illustrate returns on bonds?

    Learn how the Fisher effect shows the impact of expected future increases in inflation on the prices of bonds and their interest ... Read Answer >>
  5. What is the difference between economic value and market value?

    Learn about the differences between economic value and market value. Discover how they serve different purposes for businesses ... Read Answer >>
Related Articles
  1. Investing

    What is a Nominal Value?

    The nominal value of a security, such as a stock or bond, remains fixed for the duration of its life.
  2. Insights

    Interest Rates: Nominal and Real

    An interest rate is the cost of borrowing money, expressed as a percentage of the loan amount. Interest rates are the primary yardstick for measuring how much return lenders will get. However, ...
  3. Investing

    Understanding the Fisher Effect

    The Fisher effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate.
  4. Investing

    The Difference Between Enterprise Value and Equity Value

    Enterprise value calculates a business’s current value, while equity value offers a snapshot of that business’s current and potential future value.
  5. Investing

    Market Value Versus Book Value

    Understanding the difference between book value and market value is a simple yet fundamentally critical component to analyze a company for investment.
  6. Insights

    What's a Real Rate of Return?

    A real rate of return is an annual percentage investment return that’s adjusted for inflation, taxes or other factors.
  7. Managing Wealth

    How To Become A Corporate Board Member

    We look at how corporate boards are constructed, and how investors can get involved.
  8. Trading

    The International Fisher Effect: An Introduction

    The Fisher models have the ability to illustrate the expected relationship between interest rates, inflation and exchange rates.
RELATED TERMS
  1. Nominal Quotation

    A quote generated by a futures exchange or broker for contracts ...
  2. Nominal Rate Of Return

    The amount of money generated by an investment before expenses ...
  3. At A Discount

    This specifically refers to stock that is sold for less than ...
  4. After-Tax Real Rate Of Return

    The actual financial benefit of an investment after accounting ...
  5. Nomination Committee

    A committee that acts under the corporate governance area of ...
  6. Nominal GDP

    A gross domestic product (GDP) figure that has not been adjusted ...
Hot Definitions
  1. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  2. Whole Life Insurance Policy

    A life insurance contract with level premiums that has both an insurance and an investment component. The insurance component ...
  3. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  4. Capital Asset Pricing Model - CAPM

    A model that describes the relationship between risk and expected return and that is used in the pricing of risky securities. ...
  5. Internal Rate Of Return - IRR

    A metric used in capital budgeting measuring the profitability of potential investments.
  6. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
Trading Center