Casualty Actuarial Society (CAS) Exam 6 Practice

Which item is not part of the bond investment income components in the Exhibit?

Amortization of premium on bonds payable Interest received during the year Interest due & accrued Current year's amortization/accretion

Correct Answer:

Amortization of premium on bonds payable

Explanation:

Bond investment income consists of the cash interest received, interest that is earned but not yet received (accrued), and any amortization or accretion that adjusts the investment’s carrying amount over time. The amortization of premium on bonds payable, however, is a liability-side concept for the issuer: it reflects how the issuer handles a premium when selling the bond and reduces interest expense over the life of the debt. It does not represent income from holding the investment. Therefore, that item is not part of the bond investment income components. The other items—interest received, interest due and accrued, and the current year's amortization or accretion—are all standard parts of recognizing bond investment income.

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