Chapter 11: Amortization Table Decisions

What is happening to my investments?

Bonds will sell at a discount when the market rate of interest exceeds that of the bond coupon payment (also referred to as the stated value). This should make sense because if the bond is paying less than the current market rate of interest, to entice buyers to purchase these securities they must sell for an amount below their face value. Conversely, if the bond coupon is paying more than the current market rate it will sell for a premium, which means that the issuing company will receive more money than they are required to pay back at a later date. Both bond discounts and premiums must be recognized over the term of the bond as an increase (discount) or decrease (premium) in interest expense.