Explore commonly used personal finance terms.
Amortization of bond discount refers to the process of gradually recognizing the difference between the bond’s purchase price (if bought below par) and its face value over time. This discount is amortized as interest income, providing a more accurate measure of the bond’s return. This accounting treatment is essential for both tax reporting and understanding the bond’s true yield. Amortizing the discount increases the bond’s carrying value over time, aligning its book value with the face value as it nears maturity.
