• In name only. Differences in compounding cause the nominal rate to differ from the effective interest rate. Inflation causes the purchasing power of money to differ from one time to another.

• Is used in the sense of an indication. For example, a security may have a nominal price, nominal bid, or nominal offer. This not reflects a broker or dealer's willingness to execute at that price, for that security, and at that time. It shows a level or point from which subsequent price discovery may evolve.

 Embedded terms in definition
Interest rate
Nominal price
Price discovery
 Referenced Terms
 Annual percentage rate: The Nominal annual rate of interest interest rate, found by multiplying the periodic rate by the number of periods in a year.This is a standardized way of computing the interest rate. The exact method uses the actuarial methods. It reflects the true cost of interest after taking into account all costs such as fees, points, early payments and so on.Abbreviated APR. The periodic rate times the number of periods in a year. For example, a 5% quarterly return has an APR of 20%.

 Coupon rate: The interest rate on a long-term debt issue which is set at the time of the original issue and is constant for the full term of the issue.The annual interest rate that an issuer promises to pay periodically over the life of a bond or other debt security, expressed as a percentage of the security s face value.See Nominal Yield.In bonds, notes or other fixed income securities, the stated percentage rate of interest, usually paid twice a year.

 Deferred nominal life annuity: A monthly fixed-dollar payment beginning at retirement age. It is Nominal because the payment is fixed in dollar amount at any particular time, up to and including retirement.

 Dividend reinvestment plan: Abbreviated DRP. Automatic reinvestment of shareholder dividends in more shares of a company's stock, often without commissions. Some plans provide for the purchase of additional shares at a discount to market price. Dividend reinvestment plans allow shareholders to accumulate stock over the Long term using dollar cost averaging. The DRP is usually administered by the company without charges to the holder.Abbreviated DRIP or DRP. Plan offered by many corporations for the reinvestment of cash dividends by purchasing additional shares or fractional shares on the dividend payment date, occasionally at a discount from market price. Many DRIPs also allow the investment of additional cash from the shareholder, known as an Optional Cash Payment or Optional Cash Purchase (OCP). The DRIP is usually administered by the company without charges or only Nominal fees to the participants, and many allow additional purchases of as little as $10.Plans that enable shareholders to use dividends received on the firm's shares to acquire additional full or fractional shares at no transaction (brokerage) cost.

 Effective interest rate international context: The rate equal to the Nominal rate plus (or minus) any forecast appreciation (or depreciation) of a foreign currency relative to the currency of the MNC parent.

 Related Terms
 Deferred nominal life annuity
Nominal annual rate
Nominal cash flow
Nominal exchange rate
Nominal interest rate
Nominal interest rate international context
Nominal price
Nominal rate of interest
Nominal yield

<< Noise Nominal annual rate >>

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