The amount paid plus or minus any premium or discount payment to date to adjust the value to par or face amount by maturity date is known as:

Question

Options

• Aamortized cost
• Breimbursement cost
• Cneutral cost
• Dface value

• A
  79% (38)
• B
  2% (1)
• C
  6% (3)
• D
  13% (6)

Explanation

Amortized cost refers to the acquisition cost of a financial instrument (like a bond) adjusted over time by systematically recognizing any premium paid above par or any discount received below par, so that by maturity the carrying value equals the face amount. This is the standard accounting treatment for held-to-maturity debt securities under GAAP and IFRS.

Why the distractors are wrong:

• B. Reimbursement cost - this is not a recognized accounting or finance term for this concept; reimbursement refers to repaying someone for an expense already incurred.
• C. Neutral cost - not a standard financial or accounting term at all; it's a distractor with no established meaning in this context.
• D. Face value - face value (or par value) is the target amount at maturity, not the adjusted carrying value that gets you there. Amortized cost is the process; face value is the destination.

Memory tip: Think of "amortize" the same way you think of a mortgage amortization schedule - you start with one number and gradually adjust it over time until you reach zero (or in this case, par). Amortized cost = original cost ± adjustments heading toward par.

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