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LSDefine
Simple English definitions for legal terms
bond discount
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A quick definition of bond discount:
Term: Bond DiscountDefinition: When someone buys a bond, they are essentially lending money to the issuer of the bond. The bond has a face value, which is the amount of money that the issuer promises to pay back when the bond matures. However, sometimes the market value of the bond is less than the face value. This difference is called a bond discount. It means that the bond is not worth as much as the issuer promised to pay back. So, if someone buys a bond at a discount, they will pay less than the face value of the bond, but they will also receive less money when the bond matures.
A more thorough explanation:
A bond discount is the amount by which a bond's market value is lower than its face value. In other words, it is the difference between what you pay for a bond and the amount you will receive when the bond matures.
For example, if you buy a bond with a face value of $1,000 for $900, the bond is said to be sold at a discount. When the bond matures, you will receive the full face value of $1,000, but you only paid $900 for it.
Bond discounts can occur for various reasons, such as changes in interest rates or credit ratings. Investors may buy bonds at a discount to earn a higher yield, but they also face the risk of losing money if the bond issuer defaults.