A Discount Margin (DM) is the average expected return of a floating-rate security (typically a bond) that's earned in addition to the index underlying, or reference rate of, the security.For example, if a floating-rate bond's interest payments are based on the three-month LIBOR rate, plus a DM of 0.50%, then the bond's coupon rate would be 3.50%.The DM is important because it represents the return that an investor can expect to earn on a security above and beyond the return of the underlying reference rate.When considering a floating-rate security, it's important to look at the DM in order to get a sense of the true return that can be expected.
