CFA Practice Question

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CFA Practice Question

The amount of bond discount amortized each semi-annual period under the effective interest method continues to increase over the life of the bond. True or False?
Correct Answer: True

The effective interest (interest expense) is higher than the interest paid on the bonds when a discount applies. The discount amortization is the difference between these two values. Since the expense calculation is based on the carrying value of the bonds (face amount - discount balance), which continually increases over the life of the bonds, the amortization of the discount also increases each period.

User Contributed Comments 3

User Comment
kalps Discount amortisation = Effective interest - Actual interest (per face value)
farhan92 "Pull to Par baby!" as stated by some legend in one of the earlier q's
kingirm It means The cumulative total amount increases?
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