Discount security - Financial definition
Concise definition of the term discount security
Discount securities are securities which are issued at a discount and do not pay a cash flow until maturity.
Comprehensive definition of the term discount security
Discount securities are issued and traded at a price below par until maturity. This price gradually converges towards the redemption price as the maturity date approaches.
The investor's return for this type of securities is thus materialized through the difference between the purchase price and the redemption price, rather than through periodic interest payments as is the case for coupon-bearing securities.
Examples of discount securities are bills, bankers' acceptances, certificates of deposit, and commercial papers.