Original Issue Discount: A bond or other debt security that is issued at less than par but can be redeemed for full par value at maturity is an original issue discount security. The appeal, from an investor's perspective, is being able to invest less up front while anticipating full repayment later on. Issuers like these securities as well because they don't have to pay periodic interest. Instead, the interest accrues during the term of the bond so that the total interest when combined with the principal equals the full par value at maturity. Zero-coupon bonds are a popular type of original issue discount security. The drawback, from the investor’s perspective is that the imputed interest that accumulates is taxable each year even though that interest has not been paid. The exceptions are interest on municipal zero-coupons, which are tax exempt, or on zeros held in a tax-deferred or tax-exempt accounts.

 

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Original Issue Discount: A bond or other debt security that is issued at less than par but can be redeemed for full par value at maturity is an original issue discount security. The appeal, from an investor's perspe . . . View Full Definition

Deep Discount Bond: Deep discount bonds are originally issued with a par value, or face value, of $1,000. But they decline in value by at least 20% — to a market value of $800 or less — typically because intere . . . View Full Definition

Discount: When bonds sell for less than their face value, they are said to be selling at a discount. Bonds sell at a discount when the interest rate they pay is lower than the rate on more recently is . . . View Full Definition

Bond Discount: The difference by which a bond's market price is lower than its face value. The antithesis of a bond premium, which prevails when the market price of a bond is higher than its face value. Se . . . View Full Definition