What is the term for the difference between the stated redemption price and the basis for a bond?

The correct term for the difference between the stated redemption price and the basis for a bond is market discount. This term is specifically used in the context of bonds and reflects a situation where a bond is purchased for less than its face (or stated) value.

Market discount arises when a bond’s purchase price is below its redemption price at maturity. This typically happens when interest rates rise after the bond is issued, causing existing bonds with lower rates to decrease in price on the secondary market. Investors purchasing bonds at a discount can potentially realize a gain when the bond matures or is sold, as they will receive the higher redemption price compared to their lower purchase price.

Understanding the concept of market discount is important for both tax purposes and for assessing the potential return on investment for bondholders. It contrasts with other terms, such as "market interest," which relates to the yield and income generated from holding bonds, or "redemption gain," which could imply an increase in value upon redeeming the bond but does not specifically address the basis comparison. "Price fluctuation" is too general and does not specifically pertain to the comparison of basis and redemption price in financial terminology.