which of the following statements are correct? - A premium results when the bond's issue price...
which of the following statements are correct?
- A premium results when the bond's issue price is greater than its face value
Or
- the amortization of the premium increases the bond interest expense
Or
- the amortization of the discount reduces the bond interest expense
Homework Answers
Ans- The correct statement is A- A premium results when the bond's issue price is greater than its face value.
Explanation :- A premium on bonds occurs when the bond's par value is less than the issue price or carrying price. A bond premium occurs when the market rate of the bond is less than the stated rate of the bond.The issuer increases the price of bonds to investors and in turns decreases their interest rate earned on their investment. For example assume a company wants to issue a $1,000 10% bonds to the public when the market rate of interest is 8%. The company will increase the initial selling peice higher than $1,000, so that investors will actually make 8% on their investment.
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