Legal Definitions - 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. 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.