Nominal value of a bond

Each bond has a fixed nominal value, often £100 for a sterling bond.

When you buy petrol you pay the market price per litre. The price will vary depending on supply and demand, but the unit of measurement one litre is fixed. So it is with bonds (IOUs issued by companies and governments).

Each bond has a fixed nominal value, often £100 for a sterling bond. This is set when the bond is issued and remains the same until it is redeemed (bought back and cancelled by the issuer). It matters because, on a fixed-income bond, the nominal value is used to work out the annual coupon. If the rate is, say, 5%, then the coupon payment each year will be £5.

The nominal value is also the amount the issuer will pay to redeem the bond at the end of its life. However, in the meantime the bond market will decide what the bond is worth its market price. This is a function largely of what else investors can do with their money. For example, if a bank account offers a return of 6% on, say, £100, no one will pay £100 for a bond that only offers 5% fixed.

See Tim Bennett's video tutorial: Bond basics.

Recommended

The charts that matter: the start of the big crash?
Global Economy

The charts that matter: the start of the big crash?

US tech stocks fell further this week, more than 10% down on their November high. There’s what happened to the charts that matter most to the global e…
22 Jan 2022
The charts that matter: markets start the year with a crash
Global Economy

The charts that matter: markets start the year with a crash

As markets start 2022 with a big selloff, here’s what happened to the charts that matter most to the global economy.
8 Jan 2022
The charts that matter: Fed becomes more hawkish
Economy

The charts that matter: Fed becomes more hawkish

Gold rose meanwhile the US dollar fell after a key Fed meeting. Here’s what else happened to the charts that matter most to the global economy.
18 Dec 2021
The charts that matter: a tough week for bitcoin
Economy

The charts that matter: a tough week for bitcoin

Cryptocurrency bitcoin slid by some 20% this week. Here’s what else happened to the charts that matter most to the global economy.
11 Dec 2021

Most Popular

Ask for a pay rise – everyone else is
Inflation

Ask for a pay rise – everyone else is

As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why yo…
17 Jan 2022
Temple Bar’s Ian Lance and Nick Purves: the essence of value investing
Investment strategy

Temple Bar’s Ian Lance and Nick Purves: the essence of value investing

Ian Lance and Nick Purves of the Temple Bar investment trust explain the essence of “value investing” – buying something for less than its intrinsic v…
14 Jan 2022
US inflation is at its highest since 1982. Why aren’t markets panicking?
Inflation

US inflation is at its highest since 1982. Why aren’t markets panicking?

US inflation is at 7% – the last time it was this high interest rates were at 14%. But instead of panicking, markets just shrugged. John Stepek explai…
13 Jan 2022