Unamortized bond premium,
Definition of Unamortized bond premium:
Balance of bond premium (excess of the bonds selling price over its par value) that remains to be written off against expenses over the bonds life (maturity period).
A bond premium is the excess amount that the bond is priced at over its face value. When prevailing interest rates in the economy decrease, the price of bonds increase. This is because the market interest rate becomes lower than the fixed coupon rate on outstanding bonds. Since bondholders are holding higher-interest paying bonds, they require a premium as compensation in the market. Unamortized bond premium is what remains of the bond premium that the issuer has not yet written off as an interest expense.
Unamortized bond premium refers to the difference between a bond's face value and its sale price. If a bond is sold at a discount, for instance, at 90 cents on the dollar, the issuer must still repaid the full 100 cents of face value at par. Since this interest amount has not yet been paid to bondholders, it is a liability for the issuer.
How to use Unamortized bond premium in a sentence?
- Unamortized bond premium is a liability for issuers as they have not yet written off this interest expense, but will eventually come due.
- Unamortized bond premium is the net difference in the price that a bond issuer sells securities less the bonds' actual face value at maturity.
- On financial statements, unamortized bond premium is recorded in a liability account called the Unamortized Bond Premium Account.
Meaning of Unamortized bond premium & Unamortized bond premium Definition