Unamortized Bond Premium
What is 'Unamortized Bond Premium'
The difference between the par-value or face-value of a bond and the price above this face value, at which the bond has been issued. Unamortized bond premiums do not include any interest that has been amortized or written off.
Also referred to as the amount between the face value and the amount the bond was sold at, minus the interest expense.
Explaining 'Unamortized Bond Premium'
Referred to as part of the bond premium that will be amortized (written off) in the future. A bond premium is a bond that is priced higher than its face value. The amortized amount of this bond is credited as an interest expense. The bondholder amortizes the bond to figure out the value of the interest rate, minus the coupon rate.
Unamortized Bond Premium FAQ
How do you calculate unamortized bond discount?
The unamortized bond discount is the difference between the par value of a bond—its maturity value—and the proceeds from the bond's sale by the issuing company, less the portion that has already been amortized (written off in gradual increments) on the profit and loss statement.
What type of account is unamortized bond discount?
A contra liability account that contains the amount of discount on bonds payable not yet amortized to interest expense.
Is bonds payable on the cash flow statement?
When a business pays interest to holders of a bond it issued to raise money, the payment is reported as a cash outflow in the operating activities section of the cash flow statement.
What is Unamortized discount on bonds payable?
An unamortized bond discount is the accounting applied to a bond sold below its face amount. When a bond's stated interest rate is lower than its market interest rate on its selling date, investors will only agree to purchase the bond at a discount from its face amount.
Where is discount on bonds payable on balance sheet?
Discount on bonds payable decreases the value of the bonds and is subtracted from the bonds payable in the long‐term liability section of the balance sheet.
How do I get unamortized premium?
To know how much you can amortize yearly, add the unamortized bond premium to the face value. Then multiply the result by the yield to maturity, and subtract it from the actual interest paid. If in the first year, the unamortized bond premium is $80, you would multiply $1,080 by 5% to get $54.
What does unamortized mean?
No portion of the loan principal is ever repaid. The full loan amount is paid back at the end of the loan with one balloon payment. Unamortized debt's interest rate can be fixed or adjustable.
Further Reading
Analysis on the Logic of Critical Data in the Application of Effective Interest Rate Method——A Subsequent Measurement to Bonds Payable for Example
en.cnki.com.cn [PDF]
… data in the application of effective interest rate method to calculate unamortized cost of … liabilities and the related periodical interest by using mathematical reasoning———bonds payable for … Anhui,China);Probe into the Practical Rate Amortization in Bond's Premium Price and …
en.cnki.com.cn [PDF]
… data in the application of effective interest rate method to calculate unamortized cost of … liabilities and the related periodical interest by using mathematical reasoning———bonds payable for … Anhui,China);Probe into the Practical Rate Amortization in Bond's Premium Price and …
www.worldscientific.com [PDF]
… data in the application of effective interest rate method to calculate unamortized cost of … liabilities and the related periodical interest by using mathematical reasoning———bonds payable for … Anhui,China);Probe into the Practical Rate Amortization in Bond's Premium Price and …
www.nber.org [PDF]
… data in the application of effective interest rate method to calculate unamortized cost of … liabilities and the related periodical interest by using mathematical reasoning———bonds payable for … Anhui,China);Probe into the Practical Rate Amortization in Bond's Premium Price and …
www.tandfonline.com [PDF]
… data in the application of effective interest rate method to calculate unamortized cost of … liabilities and the related periodical interest by using mathematical reasoning———bonds payable for … Anhui,China);Probe into the Practical Rate Amortization in Bond's Premium Price and …
papers.ssrn.com [PDF]
… data in the application of effective interest rate method to calculate unamortized cost of … liabilities and the related periodical interest by using mathematical reasoning———bonds payable for … Anhui,China);Probe into the Practical Rate Amortization in Bond's Premium Price and …
www.cambridge.org [PDF]
… data in the application of effective interest rate method to calculate unamortized cost of … liabilities and the related periodical interest by using mathematical reasoning———bonds payable for … Anhui,China);Probe into the Practical Rate Amortization in Bond's Premium Price and …
www.sciencedirect.com [PDF]
… data in the application of effective interest rate method to calculate unamortized cost of … liabilities and the related periodical interest by using mathematical reasoning———bonds payable for … Anhui,China);Probe into the Practical Rate Amortization in Bond's Premium Price and …
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Q&A About Unamortized Bond Premium
Why would someone want to know how much their investment will be written off over time?
This information can help them figure out what their total cost will be once all payments have been made on their loan or other type of investment.
How do you calculate unamortized bond premium?
The formula for calculating unamortized bond premium is as follows
What is unamortized bond premium?
Unamortized bond premium is the difference between the par-value or face value of a bond and the price above this face value, at which the bond has been issued.
When would you use an amortization schedule to determine how much of your investment will be written off over time?
You would use one if your investment was being paid back over time, such as with a mortgage loan or other type of loan where there are regular payments made on the principal balance owed.
How do you determine the fair price of a bond?
The fair price of any security or capital investment can be determined by discounting its expected cash flows to the present using an appropriate discount rate.
What does it mean to value a bond?
To value a bond means to determine its fair price.
What does it mean when you say that an amortization amount represents part of a future write-off?
It means that it will be written off in the future.
How do you calculate the yield for bonds with embedded options?
Option pricing is used in conjunction with discounted cash flow analysis when valuing bonds with embedded options. The option premium as calculated is either added to or subtracted from the price of the "straight" portion."
What are some factors that affect the pricing of bonds?
The pricing of bonds depends on many factors including interest rates, credit quality and duration.
What does it mean when you say that unamortized bond premiums don't include any interest that has been amortized or written off?
It means that they don't include any interest that has already been written off.
How are unamortized bonds accounted for in accounting statements?
They are considered to be part of long term investments.
What is the definition of a bond?
A bond is a debt security that represents a loan to an entity, usually governmental or corporate.