Bond Discount


DEFINITION of 'Bond Discount'

The amount by which the market price of a bond is lower than its principal amount due at maturity. This amount, called its par value, is often $1,000. As bond prices are quoted as a percent of face value, a price of 98.00 means that the bond is selling for 98% of its face value of $1,000.00 and the bond discount is 2%.

BREAKING DOWN 'Bond Discount'

Bonds trade at a discount to par value for a number of reasons. Bonds on the secondary market with fixed coupons will trade at discounts when market interest rates rise. While the investor receives the same coupon, the bond is discounted to match prevailing market yields. Discounts also occur when bond supply exceeds demand, when the bond's credit rating is lowered, or when the perceived risk of default increases. Conversely, falling interest rates or an improved credit rating may cause a bond to trade at a premium.

  1. Discount Bond

    A bond that is issued for less than its par (or face) value, ...
  2. Coupon

    The interest rate stated on a bond when it's issued. The coupon ...
  3. Par Value

    The face value of a bond. Par value for a share refers to the ...
  4. Effective Interest Method

    The practice of accounting for the discount at which a bond is ...
  5. Net Interest Cost (NIC)

    A mathematical formula that an issuer of bonds uses to compute ...
  6. Bond Rating

    A grade given to bonds that indicates their credit quality. Private ...
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  1. What does it mean when a bond is selling at a premium? Is it a good investment?

    When the terms premium and discount are used in reference to bonds, they are telling investors that the purchase price of ... Read Full Answer >>
  2. If the price of the bond falls, does that mean the company won't pay me the par value?

    When you buy a bond, you are loaning money to the issuer. Because a bond is a loan, the interest paid to the bondholder is ... Read Full Answer >>
  3. Are high-yield bonds better investments than low-yield bonds?

    Most bonds typically make periodic payments, known as coupon payments, to the bondholder. A bond's indenture, which will ... Read Full Answer >>
  4. Are high yield bonds a good investment?

    Bonds are rated according to their risk of default by independent credit rating agencies such as Moody's, Standard & ... Read Full Answer >>
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    The maximum Social Security disability benefit amount for a single eligible person in 2015 is $1,165 per month, but you can ... Read Full Answer >>
  6. What is the relationship between the current yield and risk?

    The general relationship between current yield and risk is that they increase in correlation to one another. A higher current ... Read Full Answer >>

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