The total interest expense over the life of a bond is:
A)the sum of the interest payments less the total discount.
B)the sum of the interest payments plus the total premium.
C)the sum of the interest payments plus the total discount.
D)the sum of the interest payments.

Question

Quizplus · Accepted Answer

The total interest expense over the life of a bond is equal to the sum of the interest payments plus the total discount. This is because the discount is essentially additional interest paid to the purchaser of the bond to compensate for the lower purchase price. Therefore, the total interest expense includes both the stated interest payments and the additional interest paid through the discount. Option B is incorrect because premium is the amount paid above the face value of the bond, and is therefore not relevant to the calculation of total interest expense. Option A is incorrect because it deducts the discount from the interest payments, which would result in an understated total interest expense. Option D is incorrect because it does not account for the impact of the discount on the total interest expense.

The Total Interest Expense Over the Life of a Bond