What will be the interest income for the second year if bond is categorised as HFT? Will it be calculated as fair value * int rate or previous year’s ending carrying value * Int rate?
The interest income from a bond does not fluctuate with the bond’s price. It is simply a matter of coupon percentage x face value.
Example:
5% coupon rate on $100 par/face value: The interest income will be $5 per year regardless of whether the bond trades at $110, $100, $90, $80 or even $180 or $200.
Interest is paid by the company. The market price of the bond fluctuates because of demand/supply and other factors.
Reported interest income would be market interest rate( at time.of.purchase)*amortized cost. Interest received would be par val * coupon. Difference would be adjusted to carrying val.
You’re confusing HFT with HTM.
For HFT, there is no adjustments to carrying value, they are recorded at the fair value. Neither is there any concept of amortized cost for HFT instruments.
All those terms are used for HTM.
I’m talking about second year internet income for HFT.How do you calculate it?
My bad … everything is now hazy. For HFT it would be coupon*par value
Second year, first year, whichever year… the interest income would be coupon x par value.