# Nominal bond

A **nominal bond** (also referred to as a *conventional* bond in Canada and the U.K.) is a bond which makes payments of a fixed amount, rather than a fixed real (inflation-adjusted) value. Most bonds are nominal, so the term is normally used only when contrasting nominal bonds with real-return bonds such as I Bonds or TIPS. For example, a popular bond investment strategy is 50% nominal bonds and 50% inflation-linked bonds.

## Calculating real returns

To calculate the real return of a nominal bond one uses the following formula:

Real return (rr) = (1 + nominal return (rn))/(1 + inflation (π)) – 1

The following table shows the real returns for a set of nominal returns and an inflation rate of 3%.

nominal return | inflation rate | real return |
---|---|---|

1.00% | 3.00% | -1.94% |

2.00% | -0.97% | |

3.00% | 0.00% | |

4.00% | 0.97% | |

5.00% | 1.94% | |

6.00% | 2.91% | |

7.00% | 3.88% | |

8.00% | 4.85% | |

9.00% | 5.83% | |

10.00% | 6.80% |

(View Google Spreadsheet in browser, then File --> *Download as* to download the file.)

## See also

## External links

- Nominal, from Investopedia.
- Conventional Bonds - finiki