Question - Consider a bank who purchases corporate bonds with an intention to hold all loan assets to maturity. That is, the bank's business model is not to trade the bond on a transient basis and sell them before they mature. Consider a 3-year bond asset of the bank. The bond is issued with face value $1,000 and coupon interest rate 10%.
Assume the market interest rate is 8% for the first year of the bond period, 12% for the second year, and 6% for the third. What are the journal entries related to the bond asset for the bank using the amortized cost method?