I did schewer review for this and practise questions at the end of review. I got 16 right out of 17. now I am trying to do end of chap CFA problems. i do not know how to do a single one. Is this happening to a lot of you? BTW a question For a discount bond Interest Expense = Coupon Payment + Amort For a premium bond Interest Expense = Coupon payment - Amort am I correct? and is the amount of amort reported anywhere?
you are right pepp, when analzing however, the amort should be included in CFF not CFO!
So when analyzing a discount bond, you’d move amort interest from CFO to CFF and when analyzing a premium bond you’ll add amort interest to CFO.
add amort interest to CFF, take away from CFO
pepp Wrote: ------------------------------------------------------- > So when analyzing a discount bond, you’d move > amort interest from CFO to CFF > and when analyzing a premium bond you’ll add amort > interest to CFO. Also when you have a premium bond, your coupon payments are higher than your interest expense, hence your CFO is understated. Also when you have a discount bond, your coupon payments are lower than your interest expense, hence your CFO is overstated. These two results are conflicts with my previous statement. Someone help with the confusion.
they dont conflict. your IE is coupon-amort for premium. So instead of the IE expense being charged you are charging the coupon, hence CFO is understated. if you take out the subtract the amort from CFO it will correctly value CFO.