Explain the Amortization of a Bond Premium

question 33

Essay

Explain the amortization of a bond premium. Identify and describe the amortization method.

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Definitions:

Maturity Value

The amount payable to the holder of a financial instrument at its maturity date, including principal and any accrued interest.

365-Day Year

A calendar assumption that treats each year as having 365 days for calculating interests or other daily based computations.

Leap Years

Years in which an extra day is added to the calendar (February 29) to keep the calendar year synchronized with the astronomical year.

Interest Computation

The process of calculating the amount of interest earned or paid over a certain period, considering the principal amount, interest rate, and time.