How does a deep discount bond work?
A deep discount bond is issued at a steep discount to the face value of the bond. Thus, if the face value of the bond is Rs. 100, it is issued at a deep discount to it say, at Rs. 65. And on the date of maturity, when the bond is redeemed, the bond issuer pays you the face value of the bond. Yes, you read it right the bond is issued at a discount to the face value, and is redeemed at its face value.
