discount

Discount

Convertible: Difference between gross parity and a given convertible price. Most often invoked when a redemption is expected before the next coupon payment, making it liable for accrued interest. Antithesis of premium.
General: Information that has already been taken into account and is built into a stock or market.
Straight equity: Price lower than that of the last sale or inside market.

Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

discount

The amount by which a bond sells below face value. See also below par, discount bond.

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discount

1. To adjust the value of an asset on the basis of information rather than activity or events. For example, investors may already have discounted a firm's stock price because of the anticipation of weak earnings.

2. To deduct the charge for making a loan from the loan's principal before distributing funds to the borrower.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

Discount.

When bonds sell for less than their face value, they are said to be selling at a discount.

Bonds sell at a discount when the interest rate they pay is lower than the rate on more recently issued bonds or when the financial condition of the issuer weakens.

In the case of rising interest rates, demand for older, lower-paying bonds drops as investors put their money into newer, higher-paying alternatives, so the prices of the older bonds drop. If a rating agency reduces a bond's rating, the market price tends to drop because investors demand a higher yield for the additional risk they take in buying the bond.

Similarly, closed-end mutual funds may trade at a discount to their net asset value (NAV) as a result of weak investor demand or other market forces. Preferred stocks may also trade at a discount.

In contrast, certain bonds, called original issue discount bonds, or deep discount bonds, are issued at a discount to par value, or full face value, but are worth par at maturity.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.

discount

1. a deduction from the published LIST PRICE of a product by a supplier to a customer. The discount could be offered in respect of bulk purchases (trade discount) or for prompt payment in cash (cash discount).

   Discounts may be given when stores offer goods at special low prices as, for example, during a sale period, or on a more permanent basis by DISCOUNT STORES.

2. the purchase of a BOND, TREASURY BILL or BILL OF EXCHANGE for less than its nominal value. Bills and bonds are redeemable at a specific future date at their face values. The original buyer will purchase the bill or bond for less than its nominal value (at a discount). The discount between the price which he pays and the nominal value of the bill or bond represents interest received on the loan made against the security of the bill or bond, which will depend largely on the length of time before maturity. For example, if a bond with a nominal value of £1,000 redeemable in one year's time was bought for £900, then the £100 discount on redemption value represents an interest rate of (£100/900) 11.1% on the loan.
3. the sale of new STOCKS and SHARES at a reduced price. In the UK this involves the issue of a new share at a price below its nominal value. Where shares have no nominal value it involves the sale of new shares at below their current market price.
4. the rating of a particular company's shares at a price below the average market price of the shares of other companies operating in the same sector, the discount reflecting investors' general view that this company is likely to perform less well than the others.
5. the amount by which a foreign currency's spot exchange rate stands below its official par value in a FIXED EXCHANGE RATE SYSTEM which allows some degree of short-term fluctuation either side of the par value.

Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson

discount

1. 1a deduction from the published LIST PRICE of a good or service allowed by a supplier to a customer. The discount could be offered for prompt payment in cash (cash discount) or for bulk purchases (trade discount). Trade discounts may be given to enable suppliers to achieve large sales volumes, and thus ECONOMIES OF SCALE, or may be used as a competitive stratagem to secure customer loyalty, or may be given under duress to large, powerful buyers. See AGGREGATED REBATE, BULK BUYING.
2. the sale of new STOCKS and SHARES at a reduced price. In the UK, this involves the issue of a new share at a price below its nominal value. In other countries where shares have no nominal value it involves the sale of new shares below their current market price.
3. the purchase of a particular company's issued stock or share at a price below the average market price of those of other companies operating in the same field. The price is lower because investors feel less optimistic about that company's prospects.
4. a fall in the prices of all stocks and shares in anticipation of a downturn in the economy
5. the purchase of a BILL OF EXCHANGE, TREASURY BILL or BOND for less than its nominal value. Bills and bonds are redeemable at a specific future date at their face value. The original purchaser will buy the bill or bond for less than its nominal or face value (at a discount). The discount between the price that he pays and the nominal value of the bill or bond represents interest received on the loan made against the security of the bill or bond. If the owner of the bill or bond then wishes to sell it prior to maturity (rediscount it), then he will have to accept less than its nominal value (although more than he paid for it).

   The difference between the original price that he paid and the price received will depend largely upon the length of time before maturity. For example, if a bond with a nominal value of £1,000 redeemable in one year's time were bought for £900, then the £100 discount on redemption value represents an interest rate of £1,000/900 = 11.1% on the loan.

6. the extent to which a foreign currency's market EXCHANGE RATE falls below its ‘official’ exchange rate under a FIXED EXCHANGE RATE SYSTEM.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005

discount

To sell at a reduced value, such as selling a $100,000, 30-year, 8 percent mortgage for $90,000 in order to raise immediate cash.

The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.