What is nominal value?

The nominal value is the value of a bond or share that appears on the bond or share certificate. Unlike market value, the nominal values of stocks and bonds do not change. The nominal value has different effects depending on whether it is for a bond or a share.

What is Nominal Value?

The nominal value of a bond is the principal amount of the loan that the issuer pays to you at the end of the bond term. The interest you receive from the bond (“coupon rate”) is a percentage of the nominal value.

The nominal value is also a pricing benchmark for preferred stock. Companies issue preferred stocks with a dividend rate that is based on the nominal value, just like the coupon rate. Unlike common stocks, preferred stockholders typically do not have voting rights.

How Does Nominal Value Work?

Nominal values are commonly used as pricing metrics for bond buyers and preferred stock. Investors buy and sell bonds at prices that are above the nominal value (at a premium), below the nominal value (at a discount), or at the nominal value. Companies issue corporate bonds with a nominal value of up to $1,000, while the nominal values of governmental and agency bonds can be higher or lower than $1,000. For example, the nominal value of U.S. Treasury bonds is $100, while the nominal value of Ginnie Mae bonds is a minimum of $25,000.

Bond prices are expressed as a percentage of the nominal value. For example, a bond price of 95 means the bond is priced at 95% of its nominal value. Conversely, a bond price of 105 means its price is 105% of its nominal value. Selling a bond for less than its nominal value means that the interest you will receive from the investment is higher than the coupon rate.

Note: Investors who pay more than the nominal value receive a lower yield than the coupon rate.

Nominal Value vs Par Value

Nominal value, par value, and face value all refer to the same thing. For bonds, it refers to the principal amount of the loan that must be repaid. For preferred stocks, it refers to the value on which dividend payments are based. For common stocks, it is used for compliance with state regulations.

Nominal Value vs Market Value

The nominal value is determined by the company or government entity issuing the bond or stock. The market price is the price at which you can buy and sell stocks or bonds on an exchange like NASDAQ or NYSE. While the nominal value of preferred stocks or bonds remains constant, the market value fluctuates, as is often evident in stock and bond markets.

Note: The market price fluctuates based on a variety of conditions. For example, bond prices and preferred stock are highly sensitive to changes in interest rates. When interest rates are lower than the coupon rate of the bond or the dividend rate of the preferred stock, the market price increases. When interest rates are higher than the coupon rate or the dividend rate, the price decreases.

Why Do Investors Need to Know Nominal Value?

The cash value of bond interest and preferred stock dividends is based on the nominal value. Understanding the nominal value is essential for investors to calculate and compare yields from different bonds and preferred stocks.

How to Find Nominal Value

You can usually find the nominal value of preferred stocks in their offerings and through search tools from your brokerage agent. The nominal value of bonds is available in the securities prospectus, which is a disclosure document that the company provides to the Securities and Exchange Commission (SEC). You can find the company’s prospectus using the SEC’s EDGAR online system or obtain it from your brokerage agent.

Take note:

The nominal value is a pricing standard for bonds and preferred stocks.

The value

The nominal value of the bond is the principal amount of the loan.

The nominal value of preferred stocks is used to calculate dividend payments.

The nominal value of common stocks has no effect on investors.

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Sources:

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts in our articles. Read our editorial process to learn more about how we fact-check and maintain the accuracy, reliability, and quality of our content.

Vanguard. “Government National Mortgage Association Bonds.”

FINRA. “Bond Basics.”

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