Which of the following is an original issue discount obligation?

A. GNMA certificate

B. Treasury Bill

C. US government bond

D. FNMA bond

The correct answer is letter "B": Treasury Bill.

Explanation:

An Original Issue Discount or OID is the amount below par value at which a bond or other debt instrument is issued. To fund its activities, the U. S. government issues a series of debt obligations. Those with the shortest maturity are called Treasury Bills or T-Bills.

The government makes no regular payments to the holder of the T-Bill. Instead, T-bills are sold at a price below face value leading to a profit on the maturity date for the holder. The profits are taxable as interest income.

B

Explanation:

Treasury bill also known as T-bill is an original issue discount. They are short term financial debt issues by the government at a lesser amount than its actual face value. It is different from loan in that it is without interest but the profit comes from the discount rate at the maturity of the T-bill which is usually a short period of few days to maximum of 52 weeks.

The best answer for an original issue discount is treasury bill because they are offered at a discount rate that is, at a rate lesser than the actual face value they are worth.