How to Calculate Nominal Value

Investors must compare nominal and real values.

The nominal value of an investment is distinctly different from its price. A bond, for example, might have a face value, or nominal value, of $1,000, but what you pay for it will be determined by supply and demand in the marketplace. That could be more or less than its nominal value. A share of stock may have a nominal "par value" of only a few cents, or a fraction of a cent, but that's probably not what you'll pay if you want to buy it. Nominal value is commonly compared with "real value," which fluctuates with factors such as inflation.


Step 1

Find the real value of the investment vehicle. The real value refers to the value after the item has been adjusted for factors such as inflation. For this example, assume the real value of a bond is $2,000.

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Step 2

Locate the price index associated with the real value of the investment vehicle. A price index is a measure of relative changes over the course of time. For the example above, assume the $2,000 bond was associated with a price index of 200.


Step 3

Compare the real value with the associated price index. In the example, the bond's price index of 200 means the price has moved 200 percent. (Price indexes are in percentage form.) To illustrate this point away from the bond world, think of someone comparing the value of his house (real value) against the percentage that home prices have risen or fallen in the area (price index). Comparing those two would help you find the nominal value, or the dollar price of the home when it was purchased.



Step 4

Divide the price index by 100. In this example, you would divide 200 by 100. The 100 represents 100 percent of the bond value. This would leave you with an answer of 2. Call this the "factor," as it is the factor by which the price changed.

Step 5

Divide the real value by the factor to get the nominal value. In this example, $2,000 / 2 = $1,000. This means that the original nominal value of the bond was $1,000 before the rise in cost to its real value. The full formula for nominal value is: Nominal Value = Real Value / (Price Index / 100)



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