Nominal value

The nominal value is the actual value stated on note, coin or government bond.

Nominal value can also be referred to as the face value.

Nominal values imply there has been no correction for the effect of inflation or market prices.

Nominal value vs market value.

A government sells bonds with a nominal value of say $100. At the end of the period, the government will pay back the bond holder this nominal value. However, in the meantime, the bond can be traded on the bond market. The market value can differ significantly to the original nominal value. For example, if the initial interest rate is 2%, but then market interest rates rise, the bond at 2% will be less attractive, the market value will fall below the nominal value.

bond-yield-price

The nominal value of the bond is always £1,000. But, the market value can change.

Nominal value and interest paments

If you buy a bond with a market value of £600, interest payments will be determined not by market value, but by nominal value and nominal interest rates.

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