Glossary of Municipal Securities Terms


The discount from par value at the time the bond or other debt is issued. It is the difference between the stated issue price and the redemption price at maturity. The original issue discount is amortized over the life of the security and is generally treated as tax-exempt interest. When the investor sells the security before maturity, any profit or loss realized on such sale is calculated (for tax purposes) on the adjusted book value. The adjusted book value is calculated for each year the security is outstanding by adding the accretion value to the original offering price. The amount of the accretion value (and the existence and total amount of original issue discount) is determined in accordance with the provisions of the Internal Revenue Code and the rules and regulations of the Internal Revenue Service. See: ACCRETION OF DISCOUNT; COMPOUND ACCRETED VALUE; DISCOUNT. Compare: MARKET DISCOUNT BOND.

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