Amortization |
| The adjustment to the original cost of a bond purchased at a premium as the bond ages toward its maturity date. The premium will be adjusted lower over time so that the adjusted cost of the security will equal par, or 100, on the maturity date. For example, a bond purchased at a price of $105 with 5 years until maturity will have $1 subtracted from its adjusted cost basis each of the 5 years up to the maturity date level of par, or 100. The adjustment to cost for bonds bought at a discount is called accretion. |