Bond Premium and Discount Amortization Model

Whenever a Bond is selling at a price lower (higher) than its par value, a Discount (Premium) exists. Such Discounts and Premiums must be amortized over the life of the bond.

This fully automated model offers easy and reliable solution to the bond premium & discount amortization issues! Just enter few standardized (and certain) inputs into the spreadsheet, and the application will generate detailed outputs on following:

• Interest to be paid (at each period);

• Interest expense to be recorded (at each period);

• The amount of Discount or Premium Amortization (at each period);

• The remaining value of unamortized discount or premium (at each period);

• Bond Carrying Value (at each period).



APPLICATION GENERATES TABLE DISPLAYING THE STEPS USED IN CALCULATIONS ABOVE.



MODEL SUPPORTS BOTH METHODS OF DISCOUNT/PREMIUM AMORTIZATION:

• STRAIGHT LINE AMOORTIZATION METHOD; &

• EFFECTIVE RATE AMORTIZATION METHOD.



THE MODEL SUPPORTS: DAILY, WEEKLY, MONTHLY, QUARTERLY, SEMIANNUAL, AND ANNUAL COMPOUNDING (COUPON PAYMENT) FREQUENCIES.

Just like our other applications, this model warns users (by displaying error massages) against potential mistakes and offers corrected solutions. For example, the model can:

• Inform user that the bond price entered as a model input is incorrect( based on valuation parameters) and offer CORRECTED price instead;

• Warn user that the bond is selling at par, and thus no premium or discount exists at all;

• Etc.

This is indeed a valuable tool for many (professionals, amateurs, students) individuals who are “interacting” with bonds.



***NOTE: xlsx format requires MS Office 2007!