Pure Discount Instrument


DEFINITION of 'Pure Discount Instrument'

A type of security that pays no income until maturity; upon expiration, the holder receives the face value of the instrument. The instrument is originally sold for less than its face value (at a discount).

BREAKING DOWN 'Pure Discount Instrument'

Pure discount instruments can take the form of zero-coupon bonds or Treasury bills.

An example of a pure discount instrument could be a bond with a face value of $100. Its time to maturity is two years and it is currently selling for $85. If the investor holds this bond to maturity, he or she will earn a yield of 8.47% ( (100/85)^(1/2) ).

  1. Maturity

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  3. Zero-Coupon Mortgage

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  4. Lump-Sum Distribution

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  5. Face Value

    The nominal value or dollar value of a security stated by the ...
  6. Zero-Coupon Bond

    A debt security that doesn't pay interest (a coupon) but is traded ...
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