Discount instruments

Discount instruments are securities that give the holder the right to receive a nominal amount (face value) at maturity. Discount securities are sold at a price that is lower than the principal amount received at maturity.

A discount instrument derives its value from a discounting calculation of the future principal amount. Treasury bills and certificates of deposit are examples of discount instruments.

Example, calculate the value of a T-bill:
Nominal amount at maturity, 1 000 000, 180 days to maturity and a market interest rate of 20 %.

1000000 / (1 + (0.2 * (180/360))) = 909 091
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discount securities, financial instruments