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Simple English definitions for legal terms
original-issue discount
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A quick definition of original-issue discount:
Original-Issue Discount (OID) refers to the difference between the face value of a bond and the price at which it is first sold. In simpler terms, it means that the bond is sold at a lower price than its actual value.
A more thorough explanation:
Original-issue discount (OID) refers to the difference between the face value of a bond and the price at which it is first sold. This discount is usually expressed as a percentage of the face value and represents the interest that the bondholder will earn over the life of the bond.
Suppose a company issues a bond with a face value of $1,000 and sells it for $900. The original-issue discount in this case would be $100, or 10% of the face value. This means that the bondholder will earn interest on the $1,000 face value, but only paid $900 to acquire it.
Another example would be if a bond with a face value of $10,000 is sold for $9,000. The original-issue discount in this case would be $1,000, or 10% of the face value.
These examples illustrate how the original-issue discount is calculated and how it represents the difference between the face value and the initial selling price of a bond.