Joel purchased $125,000 of A and D Corporation's newly issued bonds for $114,500.The bonds carry an interest rate of 8% and mature in 5 years.What is the initial OID on these bonds?

Question

Quizplus · Accepted Answer

OID (Original Issue Discount) is the difference between the purchase price of the bond and its face value. The face value of the bonds is $125,000, and Joel purchased them for $114,500, which means the OID is $10,500 ($125,000 - $114,500).

Joel Purchased $125,000 of a and D Corporation's Newly Issued