What is the main purpose of the original issue discount feature of debt?

The original issue discount feature of debt serves primarily to make the issuance more appealing to investors. This mechanism allows a bond or debt instrument to be sold at a price less than its face or par value, which can attract buyers who may be seeking an investment that provides a higher yield relative to the purchase price. The discount can represent a form of compensation to investors for the time value of money, making the investment seem more advantageous.

When debt is issued at a discount, the total effective yield received by the investor includes both the interest payments and the appreciation of the bond as it approaches maturity, at which point it is redeemed for its face value. This feature is particularly attractive in a low-interest-rate environment, where traditional methods of enhancing yield—such as higher coupon rates—may not be feasible.

The other options do not accurately capture the essence of the original issue discount. Increasing the debt term does not relate to the discount feature, its purpose is not to decrease the overall debt amount, and while it might indirectly influence perceptions of collateral, enhancing collateral value is not the primary intent of an original issue discount.