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Accrued Market Discount: A Comprehensive Guide to Its Legal Implications
Definition & Meaning
Accrued market discount refers to the increase in the market value of a discounted bond as it approaches its maturity date. Discounted bonds are sold for less than their face value, and their value is expected to rise gradually until they reach maturity. For instance, if a bond with a face value of two hundred dollars is purchased for one hundred dollars, its market value will increase over time, ultimately reaching two hundred dollars at maturity when it can be redeemed for its full face value. This appreciation in market value occurs independently of fluctuations in market interest rates.
Table of content
Legal Use & context
Accrued market discount is primarily relevant in the context of investment and taxation law. It is important for investors who buy discounted bonds, as the increase in value can have tax implications. This term is often encountered in financial documents, tax filings, and investment agreements. Users can manage their investments and related paperwork using legal templates from US Legal Forms, which provide guidance on handling accrued market discounts effectively.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A bond with a face value of five hundred dollars is purchased for three hundred dollars. Over the next five years, as it nears maturity, its market value rises to five hundred dollars, reflecting an accrued market discount of two hundred dollars.
Example 2: A bond purchased for four hundred dollars with a face value of six hundred dollars will gradually increase in value until it is worth six hundred dollars at maturity. (hypothetical example)
Comparison with related terms
Term
Definition
Difference
Accrued Interest
The interest that has accumulated on a bond since the last interest payment.
Accrued market discount refers to the increase in market value, while accrued interest is about earned interest.
Market Value
The current price at which a bond can be bought or sold in the market.
Accrued market discount specifically addresses the rise in value over time, not the current market price.
Common misunderstandings
What to do if this term applies to you
If you are investing in discounted bonds, it's essential to understand how accrued market discount affects your investment's value. Consider using US Legal Forms to access templates that can help you manage your investment documentation. If your situation is complex or involves significant financial implications, consulting a financial advisor or legal professional is advisable.
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