Explore BrainMass

Explore BrainMass

    Amortization of premium and stock

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    1. What is the meaning of the following sentence: Amortization affects the amount of interest expense? How does amortization of premium affect the amount of interest expense? How does amortization of discount affect the amount of interest expense?

    2. Why might some stockholders be included to buy preferred stock rather than common stock? What are the advantages of investing in preferred stock?

    Please reference your source.

    © BrainMass Inc. brainmass.com June 3, 2020, 10:10 pm ad1c9bdddf
    https://brainmass.com/business/finance/218930

    Solution Preview

    Amortization
    1. What is the meaning of the following sentence: Amortization affects the amount of interest expense? How does amortization of premium affect the amount of interest expense? How does amortization of discount affect the amount of interest expense?

    Amortization with reference to the bonds is:
    In reckoning the yield of a bond bought at a premium, the periodic subtraction from its current yield of a proportionate share of the premium between the purchase date and the maturity date.
    http://www.answers.com/topic/amortization.
    Discount amortization increases interest expense and premium amortization reduces reported interest expenses.
    Effective interest method
    The theoretically preferable approach to recording premium and discount amortization is the effective-interest method. It recognizes interest expense as a constant percentage of the bond's carrying value, rather than as an ...

    Solution Summary

    This discusses the concept related to amortization of premium and stock

    $2.19

    ADVERTISEMENT