Calculating bond discount or premium is a key financial skill that involves determining the difference between a bond’s purchase price and its face value. For instance, a bond issued for $1,000 that is purchased for $950 would have a discount of $50.
Understanding this concept is essential for investors and analysts alike, as it impacts bond pricing, yield calculations, and investment decisions. Historically, the development of bond discount and premium has been intertwined with the evolution of fixed-income markets and the need to account for changes in interest rates.