Bonds issued at a premium reduce:
A) the perceived risk to the bondholder.
B) the cost of borrowing.
C) the bond value to be shown on the balance sheet.
D) the interest payments to be made to the bondholder.

Question

Quizplus · Accepted Answer

Bonds issued at a premium do not directly affect the perceived risk to the bondholder, the bond value shown on the balance sheet (except through amortization over time), or the interest payments (which are determined by the coupon rate and face value). However, issuing at a premium effectively reduces the cost of borrowing for the issuer because it means the issuer receives more money upfront than the bond's face value, but still only needs to pay back the face value at maturity, along with interest payments based on the face value. This extra money received upfront can be used for investments or operations, reducing the overall cost of borrowing when considering the time value of money.

Bonds Issued at a Premium Reduce