Market discount, a measurement of the difference between a bond’s market price and its face value, is a crucial calculation for investors and bond issuers alike. For instance, if a bond with a $1,000 face value trades at $950, it is said to be trading at a market discount of $50.
Understanding market discount is essential for evaluating bond investments, making informed decisions about bond issuance, and tracking the overall performance of fixed-income markets. It has been a fundamental concept in finance since the early days of bond trading.