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Discount |
| A price on a bond below par, or 100, and the opposite of a premium. A bond will trade at a discount dollar price if its coupon is lower than current interest rates on similar debt. All things being equal, the lower the coupon of a bond, the lower the price, and therefore the greater the potential discount. The extreme example of a bond trading at a discount is a zero-coupon bond. Since zero-coupon bonds do not pay periodic interest payments, all of their return comes from the difference between the discounted purchase price and par, which is paid on the maturity date. |