When a lender makes a high-risk loan, it typically wants to be compensated for the high risk by an increased yield. That increased yield often takes the form of an increase in the rate of stated interest on the loan. In some cases, though, the borrower may issue an "investment unit" consisting of a debt instrument and an option, security, or other property to the lender. The lender will accept such an investment unit in the expectation that the amount to be realized from the other property will be sufficient to raise the lender's yield to (or above) a level comparable to that which would be achieved from the receipt of only a debt instrument with a higher stated interest rate.
Original Issue Discount
