Explore commonly used personal finance terms.
An amortization premium occurs when a bond or loan is purchased above its face value, resulting in additional payments beyond the principal. This premium is amortized over the life of the bond, gradually reducing the bond’s book value until it matches the face value at maturity. Investors in premium bonds must account for amortization premium when calculating yields, as the premium impacts overall returns. The amortization of this premium affects taxable income for the investor, influencing cash flow and tax obligations over the holding period.
