Listen to a Business English Dialogue About Discount bond
Aubrey: Hi Willow, do you know what a discount bond is in business and finance?
Willow: No, I’m not familiar with it. What is it?
Aubrey: A discount bond is a bond that is sold for less than its face value, usually because its interest rate is lower than the prevailing market rate.
Willow: Oh, so investors buy discount bonds at a lower price than their eventual payoff?
Aubrey: Exactly. Investors purchase discount bonds at a discount and receive the full face value when the bond matures.
Willow: Are there any risks associated with investing in discount bonds?
Aubrey: One risk is that if interest rates rise, the market value of the bond may decrease, leading to potential losses for investors who sell before maturity.
Willow: How do investors earn a return on discount bonds?
Aubrey: Investors earn a return through the difference between the purchase price of the bond and its face value at maturity.
Willow: Can you give an example of a discount bond?
Aubrey: Sure, Treasury bills are a common example of discount bonds issued by the government.
Willow: Are there any tax implications for owning discount bonds?
Aubrey: Yes, investors may have to pay taxes on the accrued interest income of discount bonds even though they don’t receive the interest until maturity.
Willow: Thanks for explaining, Aubrey. Discount bonds seem like an interesting investment option.
Aubrey: No problem, Willow. They can be a way for investors to earn a return while diversifying their portfolio.