What is nominal value?

Nominal value is the stated or face value of a financial instrument, such as a security, currency or bond, which is determined by the issuer at the time of issuance. It is also referred to as par value, face value, or redemption value. Nominal value does not necessarily reflect the actual market value of the instrument, but it is used to calculate interest payments, dividend payouts, and the repayment amount at maturity. For example, the nominal value of a bond may be $1,000, which is the amount the issuer promises to repay at maturity, while the market value of the bond may fluctuate above or below that amount depending on prevailing interest rates and market conditions. Nominal value is typically fixed and remains the same throughout the life of the instrument, although it may be adjusted for stock splits or currency devaluations.