Discount Bond

Posted in Finance, Accounting and Economics Terms, Total Reads: 1271

Definition: Discount Bond

To increase the yield of the bond, sometimes, it is issued below its par value. This is called issue of bond at discount.

The value of bond approaches its par value when it comes closer to its maturity.  But a discounted bond may not always mean better yield. That is because in spite of the huge capital gain on redemption, the interest payments might be lower than the market levels and hence the yield get reduced.

Even if a bond is traded below its par value in the stock exchange, it is called a Discount Bond. If it is traded above its par value, then it is a Premium Bond.

The zero coupon bond is issued at a huge discount because it does not offer any interest receipts. It is also called as deep discount bond. Sometimes, the bond with huge credit/default risk is also traded at huge discount.

Hence, this concludes the definition of Discount Bond along with its overview.

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