Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Accrued Market Discount

What it is:

Accrued market discount refers to the steady increase in value of a discounted bond from the time of purchase until maturity.

How it works (Example):

The accrued market discount is a discount bond's increase in value resulting from the approach of its maturity date rather than a drop in interest rates. This occurs because the holder will receive the par value in full upon maturity, regardless of the amount by which a bond was discounted at the time of purchase. The accrued market discount is the purchase price of the bond subtracted from the bond's market value at any point in time following its purchase. 

To illustrate, suppose a bond with a $1,000 par value is purchased at a discount price of $600 and four years remaining until maturity. Over the next four years, the market value of the bond will slowly move from $600 to $1,000 as the maturity date nears. If the holder wishes to sell the bond one year later for $700, the accrued market discount would be calculated as follows: 

$700 current value - $600 purchase price = $100 accrued market value

The accrued market discount, in this instance, would be $100.

Why it Matters:

The accrued market discount on a discount bond represents the value appreciation that results from an approaching maturity date rather than favorable interest rate fluctuations.

Related Terms View All
  • Auction Market
    Though most of the trading is done via computer, auction markets can also be operated via...
  • Best Execution
    Let's assume you place an order to buy 100 shares of Company XYZ stock. The current quote...
  • Book-Entry Savings Bond
    Savings bonds are bonds issued by the U.S. government at face values ranging from $50 to...
  • Break-Even Point
    The basic idea behind break-even point is to calculate the point at which revenues begin...
  • Calendar Year
    If Company XYZ starts its fiscal year on January 1 and ends its fiscal year on December...