Bond issued below Par
Bond DiscountAmount by which the Market Price of a bond is lower than its Face Value. Outstanding bonds with fixed Coupons go to discounts when market interest rates rise. Discounts are also caused when supply exceeds demand and when a bond's Credit Rating Is reduced. When opposite conditions exist and market price is higher than face value, the difference is termed a bond premium. Premiums also occur when a bond issue with a Call Feature is redeemed prior to maturity and the bondholder is compensated for lost interest.
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Original Issue Discount (OID)
The discount from par value at the time a bond or other debt instrument is issued. It is the difference between the stated redemption price at maturity and the issue price.
Investopedia Says: An original issue discount bond is a bond issued at a price below par. The most extreme example of an OID is a zero coupon bond. OID is considered to be a form of interest, so tax issues can get a bit complicated.
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All-in cost computation:
Re-offer yield and stated redemption price
Coupon and par value
posted by JD @ 12:16 AM
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