Legal Definitions - nominal value

Nominal value refers to the stated or face value of an asset, security, or currency, as recorded in official documents or for administrative purposes. This value is often a placeholder, a minimum legal amount, or a historical figure, and it frequently differs from the item's actual market price, intrinsic worth, or current trading value. It serves as a fixed reference point rather than an indicator of real-world economic value.

• Example 1: Company Shares

  A newly formed technology startup issues shares to its initial investors. The company's articles of incorporation state that each share has a nominal value (often referred to as par value in this context) of $0.001.

  This tiny nominal value is a legal formality. Even though the shares are immediately sold to investors for $10 each and later trade on the stock market for $50 per share, the official nominal value remains $0.001. It's a baseline for accounting and legal purposes, completely separate from the actual price investors pay or the market determines.

• Example 2: Collectible Coin

  An antique coin collector owns a rare quarter-dollar coin minted in 1932. The coin has "25 CENTS" stamped on its face.

  The "25 CENTS" is the nominal value of the coin, representing its original purchasing power as legal tender. However, due to its rarity and historical significance, the coin's actual market value to collectors today might be several hundred or even thousands of dollars, far exceeding its nominal value.

• Example 3: Government Bond

  An investor purchases a U.S. Treasury bond with a stated face value of $1,000, maturing in 10 years.

  The $1,000 is the nominal value of the bond. This is the principal amount the government promises to repay the investor when the bond matures. While the bond's market price might fluctuate above or below $1,000 during its 10-year life (depending on prevailing interest rates and market demand), its nominal value, the amount to be repaid at maturity, remains fixed at $1,000.