Bond discount is the difference between a bond’s market price and its principal balance owing at maturity. This sum, known as its par value, is frequently 1,000.
Bond discount is the difference between a bond’s market price and its principal balance owing at maturity.
When a bond is issued at a discount, the market price is lower than the face value, which results in a capital gain when the bond matures and is paid out at the greater face value.
For instance, fixed-coupon bonds on the secondary market trade at a discount when interest rates rise, whereas zero-coupon short-term bonds are sometimes issued at a discount when supply outweighs demand. Different bonds trade at a discount for various reasons.
The coupon rate, face value, and market price of a bond are its three main characteristics. An issuer compensates bondholders with coupon payments for the money lent over a predetermined time period.
The principal loan amount is returned to the investor upon maturity. This sum corresponds to the bond’s face value, or par. The par value of the majority of corporate bonds is $1,000. Some bonds are offered for sale at par, at a discount, or at a premium.