Selling bonds at a premium
A)causes the total cost of borrowing to be higher than the bond interest paid.
B)causes the total cost of borrowing to be lower than the bond interest paid.
C)raises the effective interest rate above the coupon interest rate.
D)increases the amount of cash paid for interest.

Question

Quizplus · Accepted Answer

Selling bonds at a premium means the bonds are sold for more than their face value, which reduces the total cost of borrowing because the issuer receives more cash upfront than they will pay back in interest and principal.

Selling Bonds at a Premium