Deep Discount Bond
What is a Deep Discount Bond?
How Does a Deep Discount Bond Work?
The investor purchases the bond at a price that is below face value. The bond may be purchased at a significant discount because the coupon rate is significantly less than the market rate, or because of perceived instability of the issuing firm. Since the coupon rate is significantly less than the market rate, the price paid for the bond by the investor is significantly lower as well. The discount factors the higher risk into the price.
A zero-coupon bond is similar, but such bonds do not offer any return during the life of the bond, and then pay the holder the face value at maturity only. The discount on a zero coupon bond represents the interest that will be paid, in its entirety, on the maturity date of the bond.
Why Does a Deep Discount Bond Matter?
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.