What Is Reverse Amortization?

Amortized cost refers to the actual interest rate (here, the market interest rate for the same period) as the basis for calculating interest, and the investment cost minus the amount of interest. The amortized cost of a financial asset or financial liability refers to the adjusted result of the initial recognition amount of the financial asset or financial liability.

Amortized cost

Amortized cost of financial assets or financial liabilities:

(1) deducting the repaid principal;

(B) Add (or subtract) to adopt

Take the issue of premium securities as an example:

Assume that company A issues a 5-year bond with a face value of 100 yuan at a premium, the actual issue price is 125 yuan, the annual coupon rate is 10%, the annual interest is paid, and the principal is repaid 100 yuan at a time after 5 years.

100 × 10% × (P / A, i, 5) + 100 × (P / F, i, 5) = 125

Where (P / A, i, 5) is the annuity present value coefficient with interest rate i and the number of periods is 5 periods; (P / F, i, 5) is the compounding present value coefficient with interest rate i and period is 5 periods .

Calculate the actual interest rate by interpolation i = 4.33%

Amortized cost at the end of the first year

= Amortized cost at the beginning of the period (principal) + Actual interest at the beginning of the period (amortized cost at the beginning of the period * actual interest rate)-Interest payable (coupon rate * face value)

= 125 + 125 * 4.33% -100 * 10%

= 120.4125

This value is used as the amortized cost at the beginning of the next period, and the actual interest is squeezed in the last period so that the final repayment is equal to the face value.

Amortization per period = face value × face interest rate-actual cost × actual interest rate

Amortized cost at the end of the period = Amortized cost at the beginning of the period-Amortization for the period = Initial actual cost-Cumulative amortization

The discounted issue price is lower than the face value and the interest rate is also lower:

Amortization per period = actual cost × actual interest rate-face value × face interest rate

Amortized cost at the end of the period = Amortized cost at the beginning of the period + Amortization amount for the period = Initial actual cost + Cumulative amortization amount

Generally, the amortized cost is equal to its book value, but there are two special cases:

(1) With

Example 1: Suppose Dahua Co., Ltd. purchased the five-year bond issued by Huakai Company on January 1, 2005 and held it at maturity, with a coupon rate of 14%.

From the above example, we know that the initial amortized cost is the actual cost of obtaining the bond = purchase price + related expenses. The so-called actual interest rate is the yield to maturity, which is used to discount the cash flow of the bond during its validity period, so that the total present value of the discounted income is equal to the actual cost of obtaining the bond (ie, the initial amortized cost). The account processing of receiving bond interest is that the confirmed amount of investment income is equal to the initial amortized cost multiplied by the actual interest rate, and the difference between this confirmed investment income and the actual received interest is the initial amortized cost. Adjustment amount. If the adjustment is positive, the amortized cost will increase, and if the adjustment is negative, the amortized cost will decrease.