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Accounting

Bond Discount

The amount less than face value that investors pay when a bond's stated interest rate is lower than current market rates.

Bond discount is recorded as a contra-liability and amortized over the bond's life, increasing the real interest expense each period.

It's like buying a $100 gift card for only $92 because the rewards aren't as good as other options.

Real world: A company issues $100,000 bonds with 4% interest when the market wants 6% — investors only pay $93,000, creating a $7,000 discount.

💡 A bond discount means the company is paying higher real interest than the coupon rate shows — it's the price of borrowing when rates have gone up.