Definition - What does Accretion mean?

An accounting method used to step up an investor’s cost base for a bond purchased at a discount.

Testopedia explains Accretion

Certain municipal bonds purchased at a discount (a price less than par value) must have their cost base stepped up over the remaining life of the bond for tax purposes. If a $1,000 par value bond is purchased at $900 ( a $100 discount ) with 10 years to maturity, the investor must add $10 each year to their income as a result of holding the bond.

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