If they do not amortize

Achievable

I don’t follow how the cost basis is $1,020?

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Hi @Matthew - good question. The bond is originally purchase for $1,100 (110% of par). We must annualize the premium to determine the change in cost basis every year. It’s a $100 premium over 5 years, so the annualized premium is $20 ($100 / 5). The bond’s cost basis will fall by $20 every year.

After 4 years, the cost basis has declined by $80 ($20 annual decline x 4 years). $1,100 is the starting cost basis, and subtracting $80 after 4 years gets us to $1,020.

I hope this helps!

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