the amount below face valueat which a bond is issued. A bond may be issued at a discount when the interest rate on the bond is below the prevailing market interest rate, the company has financial problems, and the bond has a long maturity period. Bond discount is a contra accountto bonds payable to arrive at the carrying value. Assume a $300,000 bond is issued at 93%. The bond discount is $21,000 ($300,000 x 7%).
difference between a bond's current market price and its higher face value or maturity value. Bonds may be issued at a discount, or a discount may result from a general interest rate increase or increased risk of default. In either case, a buyer who acquires a bond at a discount realizes the discount as income as the bond matures, in addition to receiving periodic interest payments. The zero coupon bond offers an extreme example of a bond discount.
amount by which the market value of a bond is lower than its face value. Outstanding bonds with fixed coupons go to discounts when market interest rates rise. Discounts are also caused when supply exceeds demand and when a bond's credit rating Is reduced. When opposite conditions exist and market price is higher than face value, the difference is termed a bond premium. Premiums also occur when a bond issue with a call feature is redeemed prior to maturity and the bondholder is compensated for lost interest.
