How does carrying value change over time?

For a discount bond, carrying value starts below face value and increases each period as amortization is added. For a premium bond, carrying value starts above face value and decreases each period as amortization is subtracted. In both cases, carrying value converges to face value by maturity.

Why does the final period have a rounding adjustment?

When calculating each period's interest expense using floating-point arithmetic, small rounding differences accumulate. The final period's amortization is adjusted so the ending carrying value equals face value exactly, which is standard accounting practice.

How is this calculator different from a bond pricing calculator or YTM calculator?

This calculator focuses on the issuer's accounting perspective, generating the amortization schedule showing how carrying value and interest expense change each period. A bond pricing calculator computes market value from an investor's perspective, and a YTM calculator solves for yield to maturity given the bond's current price.

Bond Amortization Schedule Calculator: Effective Interest Method & Carrying Value

Bond Parameters

Face Value

Par value repaid at maturity

Annual Coupon Rate

Enter as percentage (e.g., 6 for 6%)

Annual Market Rate

Market yield at issuance

Term to Maturity

years

Bond maturity in years

Payment Frequency

Coupon payment frequency

Effective Interest Method

Interest Expense = CV × r

CV = Carrying Value | r = Market Rate per Period

Amortization = |Interest Exp − Cash Payment|

Calculator by Ryan O'Connell, CFA

Bond Summary

Issue Price $864,097 Issued at Discount

Premium / Discount -$135,903

Total Coupon Payments $600,000

Total Interest Expense $735,903

Principal at Maturity $1,000,000

Total Cash Outflow $1,600,000

Number of Periods 20

Amortization Schedule

Period	Beginning CV	Interest Expense	Cash Payment	Amortization	Ending CV

Carrying Value Over Time

Interest Expense vs Cash Payment

Formula Breakdown

Issue Price = PV(Coupons) + PV(Face Value)

Model Assumptions

Uses the effective interest method (required by U.S. GAAP; IFRS also requires it).
Straight-line amortization is not shown; it is only permitted when the difference from the effective interest method is not material.
Bonds are assumed to be issued on a coupon date (no accrued interest calculation).
Final period adjusted for rounding to ensure carrying value equals face value at maturity.
No transaction costs, underwriting fees, or bond issuance costs included.
For educational purposes. Not financial advice. Market conventions simplified.

Understanding Bond Amortization

What is Bond Amortization?

When a company issues bonds, the bonds may sell at a premium (above face value) or a discount (below face value) depending on the relationship between the stated coupon rate and the prevailing market interest rate. The difference between the issue price and face value must be amortized over the bond's life using the effective interest method.

Key Relationships

Discount: Coupon Rate < Market Rate → Issue Price < Face Value
Premium: Coupon Rate > Market Rate → Issue Price > Face Value
Par: Coupon Rate = Market Rate → Issue Price = Face Value

The Effective Interest Method

Interest Expense

Carrying Value × Market Rate per Period
Changes each period as the carrying value adjusts. Represents the true economic cost of borrowing.

Cash Payment

Face Value × Coupon Rate per Period
Constant each period. The actual cash paid to bondholders based on the stated coupon rate.

How Carrying Value Converges

The difference between interest expense and cash payment is the amortization for each period. For discount bonds, interest expense exceeds cash payment, so carrying value increases each period. For premium bonds, cash payment exceeds interest expense, so carrying value decreases each period. By maturity, carrying value equals face value exactly.

Accounting Standard: U.S. GAAP (ASC 835-30) and IFRS (IFRS 9) require the effective interest method. The straight-line method is only acceptable under U.S. GAAP when results are not materially different.

Frequently Asked Questions

A bond amortization schedule is a table that shows how a bond's carrying value (book value) changes over its life from the issue price to the face value at maturity. Each row shows the interest expense, cash payment, and amortization for one period. The schedule is used by bond issuers to record journal entries under the effective interest method required by GAAP.

The effective interest method calculates interest expense each period as the bond's carrying value multiplied by the market interest rate at issuance. This produces a constant percentage return on the carrying value, unlike the straight-line method which allocates equal amortization each period. U.S. GAAP and IFRS require the effective interest method; straight-line amortization is only permitted when the difference is not material.

A bond is issued at a discount when the coupon rate is lower than the market rate — investors pay less than face value because the stated interest is below market. A bond is issued at a premium when the coupon rate exceeds the market rate — investors pay more than face value because the stated interest is above market. At maturity, both converge to face value through the amortization process.

For a discount bond, the carrying value starts below face value and increases each period as amortization is added. For a premium bond, the carrying value starts above face value and decreases each period as amortization is subtracted. In both cases, the carrying value converges to the face value by the maturity date.

When calculating each period's interest expense and amortization using floating-point arithmetic, small rounding differences accumulate over the life of the bond. To ensure the carrying value equals the face value exactly at maturity (as required by accounting standards), the final period's amortization is adjusted to absorb any cumulative rounding difference. This is standard accounting practice.

This calculator focuses on the issuer's accounting perspective — generating the amortization schedule that shows how carrying value, interest expense, and amortization change each period over the bond's life. A bond pricing calculator computes the market value of a bond from an investor's perspective using current market yields. A YTM calculator solves for the yield to maturity given a bond's current price. For investor-side calculations, see our Bond Pricing Calculator and YTM Calculator.

Disclaimer

This calculator is for educational purposes only and uses the effective interest method per U.S. GAAP. Actual bond accounting may involve additional complexities such as bond issuance costs, accrued interest for between-date issuances, and impairment considerations. Consult a qualified accountant for specific accounting decisions. This tool should not be used as the sole basis for financial reporting.

Bond Amortization Schedule Calculator