Notional Value

Notional Value, also known as Notional Principal Amount, is the total amount of money used as the basis for calculating payments, profits and losses in a financial instrument. It is the face value of the instrument and does not represent the actual value of the instrument.

For example, if a company issues a bond at a face value of $100,000, then the notional value of the bond is $100,000. This does not mean the bond is actually worth $100,000.

Notional value is often used in swaps and other derivative instruments. The notional value of a swap is usually represented with the formula PV (notional) x (number of periods). For example, if the notional amount of a swap is $1,000,000 and the number of periods is 10 years, then the notional value of the swap is $10,000,000.