Also known as face value or book value, nominal value is the stated worth of an asset as it stands at a specified period in time. This type of value identification is used in many different applications, and may relate to the prices associated with securities or other assets. In most settings, the nominal value is different from real value, which is the worth of the asset adjusted to allow for inflation.
With investment activity, the nominal value is sometimes identified as the par value. In this application, the term relates to the currency value of a security based on the price that the issuing company has determined for the asset. It has nothing to do with what is perceived as the market value of the security. An exception would be with a bond issue for which the purchase price is set by the issuer at a lower price than the face value, owing to the fact that the bond will be worth the face value at the time the instrument matures.
With any situation involving a fixed-income security, the nominal value is likely to be identified as the face value. Here, the nominal value represents what that security is worth at the present day. If the security has earned some type of real rate of return since its purchase, that value will be more than the purchase price. In situations where the security is trading at a lower price per unit than at the time it was purchased, then the nominal value today is less than the original purchase price.
Other terms may be used in the place of nominal value, depending on the setting. When referring to the worth of capital goods, the nominal value is often called the book value. This is commonly seen in the used car business, where buyers and sellers alike will be less concerned with what the vehicle originally cost, and more focused on what is considered the worth of that vehicle at the present time.
Identifying the nominal value is often helpful in that it serves as the basis for calculating the real value of an asset. For example, assuming that an asset sold for $500.00 US dollars (USD) in 1995, and has not undergone depreciation, it would be possible to adjust that figure by allowing for inflation and determine that asset’s real value in 2005, 2006, or any year other than 1995. From this perspective, the nominal price or value is seen as the factor that established what is considered the standard or starting point for identifying the real value of an asset at any other time.
