THE STOCK MARKET'S REACTION TO UNEMPLOYMENT NEWS: WHY BAD NEWS IS USUALLY GOOD FOR STOCKS

What happens if debt securities are bought for an amount other than par value, for exam- ple, at 98 or 104? The investment is recorded at its cost, which is greater or less than the face amount of the debt. Any premium or discount should be amortized in order to bring the carrying value up (or down) to par value at maturity. Otherwise, a substantial gain or loss will be recognized at maturity. This is particularly true when the investment is a so- called “zero coupon” bond that carries little or no annual cash interest payment. These bonds are purchased at a very low price relative...