The market price of a bond issued at a discount is the present value of its principal amount at the market (effective) rate of interest when issuance The bond's value is calculated using the PV of the principal and interest payments, discounted at the market interest rate in effect on the bond's issuance date.
Because the higher face value is paid when the bond expires, a bond that was issued at a discount has a market price below its face value. This results in capital growth over time. The amount that a bond's market price differs from its face value is known as the bond discount.
An obligation's carrying value exceeds its face value when it is issued at a premium. The carrying value of a bond that has been issued at a discount is lower than the bond's face value. The carrying value of a bond is equal to the bond's face value when it is issued at par.
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