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The bond is impaired in that sense. The concept of present value isn't made up just for fun, it's because the value of money depends upon the time at which it i

The bond is impaired in that sense. The concept of present value isn't made up just for fun, it's because the value of money depends upon the time at which it is available. $10 in 10 years is obviously worth less than $10 right now, which is not only captured by present value calculations but it's also plainly and intuitively visible if you make the chain of associations of high interest rates -> higher price levels -> lower monetary value. So yes, if your bond sells for $87, you can be reasonably sure that $87 is the value of all of its payments back to you. It doesn't matter that the nominal payouts sum to $100, because they are denominated in future dollars which are worth less than present dollars! You need to cover the shortfall when you move those payments from the future to now!

NovemberWhiskey 4y ago
The bond is impaired (fair value less than amortized cost basis) but from the accountancy perspective, the question is whether it's Other Than Temporarily Impaired (OTTI). As long as the holder does not intend to sell the bond, believes that is more likely than not going to be a position where it isn't forced to sell (to generate working capital etc), and there is no likelihood of a credit loss, then the bond is not OTTI. The subjective assessment of whether you're "more likely than not" going to be forced to sell the bond is the pivot on which this whole thing tilts. It's probably a good question whether a simple balance of probabilities is really where that standard ought to be.