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The preferred method for amortizing the bond premium is the effective interest rate method or the effective interest method. Under the effective interest rate method the amount of interest expense in a given year will correlate with the amount of the bond's book value. This means that when a bond's book value decreases, the amount of interest expense will decrease, if the book value increases, so too will the amount of related interest. In short, the effective interest rate method is more logical than the straight-line method of amortizing bond premium and discounts
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Aug 26th, 2015
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