Why Amortize the Premium or Discount on Bonds Each Period?
The amortization of bonds is the process of reducing the cost basis of bonds each period in order to reflect the economic reality that as bonds approach maturity, they must be redeemed at par, or 100. The reality is that amortization is easy to prepare and necessary for tax reporting. Amortization has different tax implications for different kinds of bonds. Amortization is normally done on a yearly basis.
