What is accretion concerning original issue discount municipal bonds?

Accretion refers to the gradual increase in the value of original issue discount (OID) municipal bonds as they approach their maturity date. When these bonds are issued at a discount, the difference between the issue price and the par value is recognized as income over the life of the bond. This upward adjustment reflects the growing value of the bond as it nears maturity, where investors receive the full par value.

Thus, in the context of OID municipal bonds, the correct answer describes the process by which the bond's purchase price increases to align with its value at maturity, which is represented by par value. This increase is essential for investors as it accurately represents the bond’s yield and the income they will realize over time.