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.

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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.

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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.