How to calculate the carrying value of a bond
To calculate carrying value, you need the bond’s face value and the unamortized premium or discount. As an example, let’s say that a 10-year bond with a $25,000 face value sold for $27,000. It currently has seven years left until maturity. Here’s how you’d figure out its carrying value:
- Start with the premium or discount. In this case, the bond had a $2,000 premium (the amount it sold for, $27,000, minus the $25,000 face value).
- Divide the premium by the bond’s term. The $2,000 premium divided by a 10-year term equals $200 per year.
- Multiply the result by the time left until maturity to get the unamortized premium. With seven years left and a premium of $200 per year, the unamortized premium is $1,400.
- Add the unamortized premium to the face value. Here, you have $1,400 plus $25,000, for a carrying value of $26,400.
That’s the straight-line method of calculating amortization. There are other methods, including the effective interest method, which requires more work. The easiest option is to plug the information into a carrying value calculator online.