Bond Discount

A bond discount is the difference between the face value of a bond and its purchase price. This difference is created when a bond is issued at a price below its face value. The bond discount is amortized over the life of the bond, and it reduces the amount of interest that the bondholder receives.

There are a few reasons why a bond might be issued at a discount. One reason is that the issuer may be in financial difficulty and may need to sell the bonds at a discount in order to raise capital. Another reason is that the market interest rate may be higher than the coupon rate on the bond, and investors are willing to pay less for the bond than its face value.

The bond discount is a cost to the issuer, and it reduces the amount of money that the issuer receives from the sale of the bonds. However, the bond discount can also be beneficial to the issuer, because it can help to reduce the interest payments that the issuer must make on the bonds.

The bond discount is also a benefit to the bondholder, because it reduces the amount of interest that the bondholder must pay on the bonds. This is because the bond discount is amortized over the life of the bond, and it reduces the amount of interest that the bondholder receives.

The bond discount is a complex financial concept, and it is important to understand how it works before investing in bonds.