Asked by Samantha Alvarez on May 08, 2024
Verified
When bonds are issued at a premium, the total interest cost of the bonds over the life of the bonds is equal to the amount of the
A) interest paid over the life of the bond.
B) interest paid over the life of the bond plus the amount of premium amortized.
C) interest paid over the life of the bond minus the amount of premium amortized.
D) premium.
Premium Amortized
The process of gradually writing off the initial cost of a premium over the period of the bond to match it with the interest earned.
Interest Cost
The cost incurred by an entity for borrowing funds, essentially the price paid for the use of borrowed money.
Bonds Issued
Debt securities sold by corporations or governments to investors to raise capital, requiring periodic interest payments and repayment of principal at maturity.
- Evaluate the consequences of bond release terms on financial documentation, considering premium and discount instances.
Verified Answer
JT
Jordan TremblayMay 11, 2024
Final Answer :
C
Explanation :
When bonds are issued at a premium, the total interest cost over the life of the bonds is equal to the interest paid minus the premium amortized. This is because the premium effectively reduces the cost of borrowing by decreasing the amount of interest expense recognized over the life of the bond.
Learning Objectives
- Evaluate the consequences of bond release terms on financial documentation, considering premium and discount instances.