Bond Premium, Discount, and Amortized Balances

Bond premium and discount calculations explain how an above- or below-principal amount is allocated after a bond is issued or acquired. They connect price and yield, but the relevant balance depends on whether the reader is analyzing a market quote, an investor’s asset, an issuer’s liability, or a tax record.

Start with Bond Prices at Par, Premium, or Discount when the question is why a bond trades above or below par. Use Amortizable Bond Premium for the allocation process, then use the unamortized-premium or unamortized-discount pages to interpret the amount still remaining at a measurement date.

Keep the Records Separate

These records can show different amounts on the same date. A bond can retain an unamortized premium in a cost schedule while trading below par after rates rise. A bond originally issued at par can later trade at a discount without having an unamortized issue discount.

Reading an Amortization Schedule

Verify the opening carrying amount, effective yield, cash coupon, period amortization or accretion, and closing carrying amount. For a simple premium bond, coupon cash exceeds effective interest and carrying amount declines. For a simple discount bond, effective interest exceeds the coupon and carrying amount increases.

Also check purchase or issue date, accrued interest, transaction costs, payment frequency, call terms, principal amortization, impairment, and the governing accounting or tax framework. A formula that works for a plain fixed-rate bullet bond may not work for a callable, floating-rate, inflation-linked, convertible, impaired, or restructured instrument.

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