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Original Issue Discount
The difference between a bond's face value and the amount for which it is sold by the issuer. Many bonds, especially those with low interest rates, are issued at a price less than par in order to entice buyers. Generally, the lower the interest rate, the greater the original issue discount, with zero-coupon bonds having the largest. Short of default, the original issue discount is a guaranteed profit for a bondholder, as bonds must be redeemed at face value. It is considered a form of interest and may be taxed as such.
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original-issue discount (OID)
The amount by which a bond is sold below its par value at the time of issue. With the exception of usually tax-free securities (that is, municipals), investors must report a certain portion of the discount as income for tax purposes each year.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.