What is a discount bond?

discount bonds are bonds that are sold for less than the nominal value of the bond. In many cases, the discount bond will also be a bond with zero coupon. Like many bond problems, discount bond usually applies to the original purchase price plus a fixed or variable amount of interest throughout the bond life.

understanding how difficult the discounted bond function is difficult. Assuming the bond has a nominal value of $ 2,000.00 and sold for $ 1,800.00, it can be said that the bond sells a $ 200.00 discount. The new bond owner can look forward to gaining the return on the principal and all interest that is generated according to the conditions surrounding the bond problem.

There may be several reasons why a discount bond may be available. One of the most common is to change market conditions that adversely affect the variable interest rate related to the bond. The original buyer may determine that the return generated by shifting in the prizewill continue to reduce. In this case, the original holder may decide to sell a bond with a discount before the interest rate is further reduced.

Another reason for the sale of discount bond can have to do with financial problems by the bond holder. Bonds are relatively easily sold quickly because they tend to be less volatile than many other forms of investment. By reducing the cost of a bond with a small percentage, sellers have another reason to buy a bond. This can mean fast cash for the original holder that can help alleviate a temporary monetary crisis or generate resources that the investor can use to buy other and more lucrative investments.

While many examples of discount bond pay interest, that's not always. If no interest is involved, the investment is known as a Jakočistý discount bond. In this scenario the buyer shops DLUhopis for less than nominal value, but eventually gets a return by receiving the nominal value of the bond.