In a bond investment with a yield greater than the coupon rate, which accounting concept would apply?

In a bond investment where the yield is greater than the coupon rate, the bond is selling at a discount. This is because investors demand a higher yield than what the bond is offering through its coupon payments, indicating that the bond is less attractive compared to other investment opportunities.

The correct answer pertains to the amortization of discount. When a bond is issued at a price lower than its face value, the difference between the face value and the issue price represents a discount. Over the life of the bond, this discount is amortized, meaning that the bond's carrying amount increases progressively to reach its face value at maturity. This process allows the investor to recognize additional interest income over time, reflective of the higher effective yield.

Understanding this concept is crucial for properly accounting for bonds held as investments, as it affects the recognized interest income and the overall valuation of the investment in financial statements.