The nominal value of a security is an important figure, as it is the price stated on the face of the security and serves as a basis of reference for several other calculations. It is important to note, however, that the nominal value of a security may not reflect the actual market price of said security, and can be significantly higher or lower depending on market conditions.
For bonds, the nominal value represents the face value, or the price the bond will be redeemed at if held to maturity. This value can vary significantly to the market value the bond will trade hands for in the secondary market, as it is influenced by interest rates and other factors.
Likewise, the nominal value of preferred stocks is used to calculate the stock's dividend. A preferred stock's nominal value does not necessarily need to equate to the current market price. For example, a preferred stock could have a nominal value of $20, but be trading for $30 in the secondary market. This means although the investor will be paying $30 for the stock, they are technically receiving the benefits of a $20 stock.
Also, the nominal value of a common stock is arbitrary and is generally used only for balance sheet purposes. Unlike bonds and preferred stocks, the nominal value of common stock is not used to calculate the dividend or any other fundamental aspect of the stock. It is simply used as a value to represent the company's equity on a balance sheet.
Finally, in economics, the nominal value of an item is the current stated and currency price. This is different to the actual value of the item in terms of purchasing power, as the nominal value does not adjust for inflation. For example, a dollar bill today may have the same nominal value as it did 10 years ago, however, its actual purchasing power has likely declined due to inflation.
In summary,nominal value refers to different aspects of a security, depending on its type. For bonds, it is the face value at maturity, for preferred stocks, it is the value used to calculate the dividend, and for common stocks, it is an arbitrary figure assigned to it for balance sheet purposes. Furthermore, in economics, the nominal value represents the current price, without adjusting for inflation.
For bonds, the nominal value represents the face value, or the price the bond will be redeemed at if held to maturity. This value can vary significantly to the market value the bond will trade hands for in the secondary market, as it is influenced by interest rates and other factors.
Likewise, the nominal value of preferred stocks is used to calculate the stock's dividend. A preferred stock's nominal value does not necessarily need to equate to the current market price. For example, a preferred stock could have a nominal value of $20, but be trading for $30 in the secondary market. This means although the investor will be paying $30 for the stock, they are technically receiving the benefits of a $20 stock.
Also, the nominal value of a common stock is arbitrary and is generally used only for balance sheet purposes. Unlike bonds and preferred stocks, the nominal value of common stock is not used to calculate the dividend or any other fundamental aspect of the stock. It is simply used as a value to represent the company's equity on a balance sheet.
Finally, in economics, the nominal value of an item is the current stated and currency price. This is different to the actual value of the item in terms of purchasing power, as the nominal value does not adjust for inflation. For example, a dollar bill today may have the same nominal value as it did 10 years ago, however, its actual purchasing power has likely declined due to inflation.
In summary,nominal value refers to different aspects of a security, depending on its type. For bonds, it is the face value at maturity, for preferred stocks, it is the value used to calculate the dividend, and for common stocks, it is an arbitrary figure assigned to it for balance sheet purposes. Furthermore, in economics, the nominal value represents the current price, without adjusting for inflation.