Business and Personal Finance Dictionary

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• DEEP DISCOUNT BONDS
  
  Bonds which bear interest at a rate well below market and accordingly are priced for sale at a substantial discount from their face value so that the yield to maturity approximates market rates. Under the July 1993 arbitrage regulations, if the original issue discount > 0.25%*(average life of term), sinking funds on excessive discount term bonds must be valued at the net present value of the interest and principal that would be paid to final maturity of the term bond discounted at the yield to maturity of the term bond. See Arbitrage Yield.
  
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