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TimeValue Software Blog

Constant Yield Method for Bond Amortization

By Martel Pellerin

TValue software is an excellent tool to calculate the discount or premium amortization of a bond. The Internal Revenue Service requires you to use the “constant yield method” to amortize bond premiums or discounts, which is the excess or discount of the bond price over face value. You pay the bond price and, if you hold the bond until maturity, you receive the face value. This creates a loss or gain, but you can’t deduct the loss or gain all at once. Instead, you amortize the bond over its remaining lifetime to expense part of the loss or book income each year. The amortized amount reduces or increases the interest income you receive for investing in the bond.

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