Original Issue Discount: Definition & Taxation

Instructions:

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question 1 of 3

Consider the following scenario: You purchase a 20-year bond with a par value of $250,000. Your price is $241,000. Would you need to declare the OID amount on your taxes?

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1. Which of the following best describes the following bond? You purchase a bond for $142, and it has a face value of $1000. It matures in 20 years and doesn't pay interest over the life of the loan.

2. Why would an investor purchase a zero-coupon bond?

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About This Quiz & Worksheet

What is the reason why the original issue discount (OID) is considered interest? This quiz and worksheet will check your answer to this question and other questions concerning the original issue discount.

Quiz & Worksheet Goals

You will be quizzed on the following topics:

  • Declaring the OID amount on your taxes
  • Identifying a specific type of bond
  • Benefit of an investor purchasing a zero-coupon bond
  • Reason why the original issue discount is considered interest
  • Risk of a zero-coupon bond

Skills Practiced

  • Knowledge application - use your knowledge to answer questions about the original issue discount
  • Interpreting information - verify that you can read information about a zero-coupon bond and interpret it correctly
  • Information recall - access the knowledge you've gained regarding why the original issue discount is considered interest

Additional Learning

Learn more about this topic with the lesson titled Original Issue Discount: Definition & Taxation. This lesson will review the following:

  • Another term for face value
  • Reason why organizations issue zero-coupon bonds
  • Overview of tax implications
  • Meaning of 'de minimus rule'
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