Discount is the difference between a base loan amount and the accrued interest at maturity.
Examples are when you buy Treasuries, a Certificate of Deposit, or a Savings Bond. You are lending at the stated rate of interest the borrower is willing to pay, i.e. the amount they are willing to pay for the use of your money for a given length of time.
For example: If you bought a $100.00 Series I Savings Bond November 1st, 2002, with 4.08% interest, you pay (lend) $100.00 to Uncle Sam with the understanding that if you wait until the Bond matures on June 1st, 2003, you will get back $102.04 when you cash it in. Information provided by Savings Bonds.gov • UNITED STATES SAVINGS BONDS/NOTES EARNINGS REPORT VALUES AND YIELDS FOR $100 SERIES I BONDS November 2002 Thru October 2003
However, if you wish to cash it in or sell it before that time you certainly can. You will get back the $100.00 you invested, plus a portion of the interest.
Either way, the discount is the difference between what is paid at the time of purchase, and and the purchase amount plus interest-earned on the maturity date.
The Scam: Con artists wish to delude you into believing that there is a secret system by which an investor can purchase blocks of securities of one type or another at anywhere from 20% to 50% discount, then sell them overnight to brokerage houses and pension funds for huge profits.
Granted, anyone can charge whatever interest they wish short of USURY for a loan. Additionally, all issuing institutions, both international and domestic, make their discount rate information available to the public.
So you have to ask yourself, if the offer is genuine, who on earth is issuing the security? Is the source reliable? Where can you verify the discount rate and the solidity of the issuer? Would a so-called PRIME BANK actually pay that much interest?
I can tell you this - any government or financial institution that agrees to pay that much interest on loans won't be around long enough for anyone to collect. It'll go broke in short order.