Accretion Of Discount: Meaning And Methods To Calculate

Amount of discount accretion is calculated by taking Purchase Basis x (YTM/Accrual periods per year) - Coupon Interest.

Let's assume that an investor purchases a bond with a face value of Rs. 200 and pays Rs.189. Since the investor is guaranteed Rs. 200 upon maturity of the bond, the bond will increase in value between the time of purchase and the maturity date. This increase is called accretion of discount.

"Amortization" decreases cost and income; "Accretion" increases cost and income.

Accreted value refers to a bond's current value, including interest accrued even if it is not paid until maturity. In other words, it's the value of a security or instrument that accrues interest but doesn't pay interest until maturity. Accrued value is typically seen in zero-coupon bonds or cumulative preferred stock.

The increasing value of a bond over time is called bond accretion. As the bond gets closer to maturity, its value increases until it reaches its par value, which is the amount paid to the holder.