Nominal value is a term used in finance and economics to refer to the face value or stated value of a security or asset, such as a bond or stock, as opposed to its market value or intrinsic value. Nominal value is typically determined by the issuer of the security or asset and is usually stated on the face of the security or asset.
The importance of nominal value lies in its use as a means of identifying and tracking securities and assets in financial markets. Nominal value serves as a reference point for investors and analysts to compare the price of a security or asset to its face value, which can help them determine whether the security or asset is overvalued or undervalued.
The history of nominal value can be traced back to the early days of financial markets, when securities such as bonds and stocks were issued with a face value or nominal value that represented the amount that the issuer was obligated to repay to investors at the maturity of the security.
Examples of situations where nominal value is involved include the issuance of bonds and stocks, the calculation of interest payments and dividends, and the calculation of the net asset value of mutual funds and exchange-traded funds.
Overall, nominal value is an important concept in finance and economics that serves as a reference point for investors and analysts to evaluate the price of securities and assets in financial markets. By understanding the nominal value of a security or asset, investors and analysts can make more informed decisions about buying, selling, and holding investments.