The nominal value is a concept that identifies essential data for those who operate on the stock exchange and beyond: here is the meaning, calculation and concrete examples.
The term "nominal value" is one of the most recurring expressions in economic and financial jargon, and is an essential point of reference for those who wish to fully understand the functioning of markets and monetary dynamics. Despite its apparent simplicity, it is a polysemic concept, the meaning of which can vary significantly depending on the application context.
In general, nominal value can indicate the face value of a coin, a security, or any document with legal value. In financial practice, however, the term is frequently used to designate the formal value assigned to instruments such as shares or bonds at the time of their issue.
It should be emphasized that this value, conventionally fixed, does not reflect market fluctuations, but represents an accounting or legal basis useful for various purposes, including the determination of coupons, dividends or property rights.
So, what is it and why is it important to know the nominal value? Because it is not a mere accounting detail, but a fundamental starting point for analyzing a broader context. It represents a key tool for attributing meaning to the numbers and figures that influence public, corporate and personal decisions on a daily basis. Let’s delve deeper into the definition, calculation methods and practical implications of the nominal value for stocks and bonds, starting from the economic-financial ecosystem.
What is nominal value in economics
Let’s start from the economic discipline and give a definition of nominal value in this sense:
the nominal value represents the value expressed in current monetary units of a good, service or economic quantity, without considering the effects of inflation or other variations in the purchasing power of money. It is a theoretical and conventional value, used to measure and compare economic data in current monetary terms.
In economics, nominal value simply represents the amount that is printed on a coin or security. For example, a 50 euro note has a nominal value of 50 euros, regardless of the actual purchasing power of that amount at a given time.
Suppose that in 2025 a worker earns an annual salary of 30,000 euros. This is his nominal salary. However, if annual inflation is 5%, the actual purchasing power of his salary will be lower than the previous year, indicating a decrease in real wages.
In the macroeconomic context, distinguishing between nominal and real value is essential for the correct reading of key indicators such as GDP, wages, interest rates or public debt. For example, according to data released by Eurostat in the first quarter of 2025, nominal GDP in the euro area recorded a growth of 3.1% on an annual basis, while real GDP, adjusted for the effects of inflation, stood at +1.4%, highlighting a slowdown in effective growth. This gap between nominal and real is particularly relevant today in a context of structural inflation higher than the historical average of the last ten years, estimated at around 3.2% per year for 2025 by the European Central Bank.
Correctly understanding the concept of nominal value is therefore essential to carry out coherent economic analyses, evaluate the solidity of investments, but also to interpret the data presented in company balance sheets or official documents of public bodies.
The meaning of nominal value in finance
In the financial field, nominal value refers to the face value or declared value of a financial instrument, such as shares or bonds, at the time of their issue. This value is established by the issuer and serves as the basis for determining rights and obligations associated with the security.
Nominal value is essential for:
- determining the rights of shareholders and bondholders;
- calculate interest and dividends;
- establish the issue price of securities.
The concept takes on different nuances depending on the instrument to which it is applied.
Nominal value of shares
For shares, the nominal value represents the share of share capital that each share incorporates. For example, if a company has a share capital of 1,000,000 euros divided into 100,000 shares, the nominal value of each share will be 10 euros. This value is indicated in the company bylaws and does not vary with market fluctuations.
Nominal value of bonds
In the case of bonds, the nominal value is the amount that the issuer undertakes to repay to the holder at maturity of the security. For example, a bond with a nominal value of 1,000 euros and a coupon rate of 5% provides for the annual payment of 50 euros of interest until maturity, at which point the nominal amount will be repaid.
How is the nominal value calculated?
The calculation of the nominal value is generally simple, as it is based on predefined values established at the time of issuance of a financial instrument. However, the application of the nominal value may vary depending on the instrument in question. Here are some examples to clarify the concept.
- Shares: Suppose a company issues 10,000 shares with a nominal value of 5 euros each. The company’s share capital will therefore be 50,000 euros (10,000 shares x 5 euros). This nominal value does not change over time, regardless of the market price of the shares, which may rise or fall based on supply and demand. For example, if the market price of a share rises to 20 euros, the nominal value will still remain 5 euros.
- Bonds: Let’s consider a bond issued with a nominal value of 1,000 euros and an interest rate of 4%. In this case, the investor will receive 40 euros per year in interest (4% of 1,000 euros). At the maturity of the bond, the investor will receive the nominal value of 1,000 euros, regardless of market variations that may have affected the selling price of the bond during its life.
If an investor buys a bond at a price higher or lower than the face value, for example at 1,050 euros or 950 euros, the face value is still 1,000 euros. Interest will still be calculated based on the face value, not the purchase price. At maturity, the issuer will always reimburse 1,000 euros.
The difference between face value and real value for stocks and bonds
The face value of a financial instrument is the declared value without considering market conditions or inflation. As described several times, if you own a bond with a face value of 1,000 euros, this is the amount you will receive at maturity, regardless of how the purchasing power has changed over time.
The real value, on the other hand, measures the actual value of an instrument taking into account inflation and other economic changes. If inflation is high, the real value of a sum of money will be less than its nominal value.
Understanding the distinction between nominal value and real value is essential to properly value financial instruments.
| Nominal Value | Real Value | |
|---|---|---|
| Definition | The declared value of a security at the time of issuance | The actual value of a security, considering inflation and market conditions. |
| Characteristics | Fixed and contractually established | Variable over time |
| Use | Used to calculate interest and dividends | Important for assessing the real return on an investment |
| Meaning | Does not reflect market or inflation changes | Reflects actual purchasing power |
A practical example?
- Suppose we own a bond with a nominal value of 1,000 euros and a coupon rate of 5%, which provides for the annual payment of 50 euros of interest. If annual inflation is 3%, the real value of the interest received will be lower, reducing the effective return on the investment.
It is important to consider the real value to understand the effective return of a security. The distinction with the nominal value helps investors make more informed decisions and correctly evaluate the associated risks.
Original article published on Money.it Italy. Original title: Valore nominale, il significato per azioni e obbligazioni
