Accretion of Discount

    graph TD;
	    A[Bond Purchase at Discount] --> B[Increased Value Over Time]
	    B --> C[Value Reaches Par at Maturity]
	    C --> D[Gain for Astute Investors! 🚀]

## What does accretion of discount describe? - [x] The increase in the value of a discounted instrument as it approaches maturity - [ ] The immediate increase in market price after purchase - [ ] The decrease in bond prices as interest rates rise - [ ] The random fluctuation of stock prices > **Explanation:** Accretion of discount specifically refers to how the value rises of those financial instruments over time until they reach par value. ## A bond purchased at a discount matures at: - [x] Par value - [ ] A higher specified price - [ ] The original purchase price - [ ] A depreciated value > **Explanation:** Regardless of how low it was bought, at maturity, it will always be redeemed at par value. ## What occurs to a discounted bond value as it approaches maturity? - [x] It accretes in value. - [ ] It becomes worthless. - [ ] It fluctuates unpredictably. - [ ] It is liquidated for immediate cash. > **Explanation:** The bond’s value steadily increases (or accretes) up to its par value as the maturity date draws near. ## How do premium bonds behave in comparison? - [ ] They also accrete in value until maturity. - [ ] They lose value as they approach maturity. - [x] They amortize down to par value over time. - [ ] They turn to dust if held too long. > **Explanation:** Premium bonds amortize down, lowering their value as they come closer to being redeemed at par. ## The concept of accretion of discount is primarily about: - [ ] Ironing out wrinkles in stock prices. - [x] Reflecting the increase in value of discounted bonds. - [ ] The metaphysical state of cash at hand. - [ ] New-age investment philosophies. > **Explanation:** Accretion of discount better reflects how securities purchased at lower prices grow toward their lawful value at amaturity. ## Which mathematical formula represents yield from a bond? - [ ] A complex algorithm that impossibly confuses investors. - [x] \\[Yield = \frac{Face Value - Purchase Price}{Purchase Price} \times \frac{365}{Days to Maturity} \times 100\\] - [ ] The joys of compound interest over time. - [ ] What’s left after emotional investing takes its toll. > **Explanation:** That yield formula outlines how to crunch the numbers with cash in mind! ## If two investors buy the same discounted bond, how might their returns differ? - [ ] They won’t differ; it's fixed! - [x] Depending on when they sell or hold, returns might change. - [ ] One gets a gold star sticker, the other doesn’t! - [ ] No differences; they both lose it all for not reading the fine print. > **Explanation:** While purchase price remains constant, selling prices later can vary substantially based on market fluctuations. ## The accretion of discount is primarily beneficial for: - [x] Income-focused investors seeking greater returns at maturity. - [ ] High-risk investors who avoid bonds! - [ ] Those who purely speculate on stock market movements. - [ ] Individuals that love gambling on futures. > **Explanation:** Smart investors know discounted bonds can mean a clear addition to their future bank accounts. ## What is the opposite of accretion of discount? - [ ] Decreasing returns. - [x] Amortization of premium. - [ ] Haircuts on investments. - [ ] Blank paper for writing sarcastic notes. > **Explanation:** "Amortization" is the discounting opposite of how bonds at discount rise. ## Would you be able to estimate the value accreted of your bond just by observing it from day one? - [ ] Sure! Just keep track of every millisecond. - [ ] It’s impossible; their value is elusive. - [ ] Only if you have psychic abilities! - [x] With the right calculations, it’s quite achievable. > **Explanation:** With formula in hand, diligent investors can guesstimate the worth of their bonds right on schedule!