Question

Compare cost and amortized cost valuations for a bond. If a $150,000 mortgage is amortized over...

Compare cost and amortized cost valuations for a bond. If a $150,000 mortgage is amortized
over four years with a 10% rate, what is the fixed payment and what is the fixed principle
amount in those two separate amortization tables?

Homework Answers

Answer #1

It seems there are two questions here, one is the comparison between cost and amortized cost for a bond. And the other one is for the amortization schedule of a mortgage.

The valuation of a bond is of two types: at amortized costs and at fair value(market value)

When the bond is classified as 'Held to Maturity' - then it is valued at amortized cost (book value)

Whereas, if the bond is classified as 'Available for Sale' or 'Held to Trade', then it valued at fair value, with fluctuations being recorded through OCI or P&L A/c

As for the loan amortization schedule, the fixed Yearly payment (installment) is $ 47,320.62, while the principal repayment can be seen from the table below.

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