What it is:
Also referred to asor , nominal value is the value shown on the face of a security certificate or instrument, including . The concept most commonly applies to and but is especially important to and investors.
Nominal value is an often arbitrarily assigned amount used to calculate the dollar balance sheet purposes (par value is the term commonly used in this context). For and preferred stock, however, nominal value represents the amount that must be repaid at . usually carry a $1,000 nominal value, municipal bonds usually carry a $5,000 nominal value, and government usually carry a $10,000 nominal value.value of a company’s for
How it works (Example):
Let’s assume XYZ Company decides to bonds mature in 20 years. If XYZ Company sells the bonds in $1,000 increments, each certificate would have a nominal value of $1,000 and the bearer of that would therefore be entitled to receive $1,000 from XYZ in 20 years.$10 million in to the construction of a new factory. The
Why it Matters:
Nominal value is a crucial component of manyand calculations including interest payments, values, discounts, premiums and yields.
As shown in the example above, the interest on debt before it is due (this is often done on a sliding scale based on when the are redeemed).is usually calculated as a percentage of nominal value. Additionally, often receive a percentage over the ’s as a redemption premium if the borrower repays the
It is important to Bond prices, however, are heavily influenced by their nominal values and are quoted as a percentage of nominal value. Bond prices may diverge from their nominal values if their interest rates are above or below the interest rates offered by other similar bonds. Further, although a bond’s nominal value may represent the amount the bond was originally sold for (and thus how much the issuer was lent), many bonds are sold at a premium or discount to nominal value, depending on market conditions and the creditworthiness of the issuer. This is particularly true for zero-coupon bonds, which are always sold at a discount because the investor does not receive interest until the bonds mature.that for , nominal value (commonly called when referring to ) generally has no relation to .