In 2010 Coopermine Ltd.issued 10-year, 5% coupon bonds at par.In 2013 interest rates on similar debt have increased to 6%.What is the effect of the change in interest rates on Coopermine Ltd.'s 2013 financial statements?

Question

Quizplus · Accepted Answer

Since the bonds were issued at par and are a fixed-rate debt instrument, changes in market interest rates after issuance do not affect the interest expense recorded on the financial statements. The interest expense and the carrying value of the bond remain constant over its life, assuming it is not revalued or marked to market.