Amortization of HTM

CFA Level II
#1

Hi All,

This is inregards to Intercorporate Investments of FRA. Why do we need to amortize the bond value of HTM security?

#2

Because the accounting rules say that you amortize the premium/discount so that you spread out the gain/loss over the life of the bond.

It’s an application of the matching principle.

#3

Thanks,Sir!!

#4

My pleasure.