Discount Margin - DM

AAA

DEFINITION of 'Discount Margin - DM'

The return earned in addition to the index underlying the floating rate security.

INVESTOPEDIA EXPLAINS 'Discount Margin - DM'

The size of the discount margin depends on the price of the floating rate security. There are three basic situations:



1. If the price of a floater is equal to par, the investor's discount margin would be equal to the reset margin.



2. Due to the tendency for bond prices to converge to par as the bond reaches maturity, the investor can make an additional return over the reset margin if the floating rate bond was priced at a discount. The additional return plus the reset margin equals the discount margin.



3. Should the floating rate bond be priced above par, the discount margin would equal the reference rate less the reduced earnings.

RELATED TERMS
  1. Par Value

    The face value of a bond. Par value for a share refers to the ...
  2. Floating-Rate Note - FRN

    A note with a variable interest rate. The interest rate is usually ...
  3. Floater

    A bond or other type of debt whose coupon rate changes with market ...
  4. Reference Rate

    An interest rate benchmark upon which a floating-rate security ...
  5. Reset Margin

    The difference between the interest rate of a security and the ...
  6. Surrender Period

    The amount of time an investor must wait until he or she can ...
Related Articles
  1. Taxes

    What's the difference between cost of ...

  2. Bonds & Fixed Income

    How long will it take for a bond to ...

  3. Bonds & Fixed Income

    What determines the price of a bond ...

  4. Trading Strategies

    What's the safest way to invest in high-yielding ...

Hot Definitions
  1. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  2. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  3. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  4. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  5. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center