A bond’s discount is the difference between the market price of the bond and the principal amount due at maturity that is higher than the market price. Bonds can trade at a discount for many reasons, including higher or lower federal interest rates.
For example, suppose that a municipal bond pays a fixed interest rate and has a $100 par value at maturity. If interest rates begin to rise, the bond may start to trade at a discount of perhaps $2 at $98, meaning that it trades at a 2% discount.
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