If the amount of a bond premium on an issued 11%, four-year, $100,000 bond is $12,928, the annual interest expense is $5,500.

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The annual interest expense on a bond issued at a premium is calculated by subtracting the amortization of the premium from the bond's annual coupon payment. The coupon payment is the face value of the bond multiplied by the coupon rate (11% of $100,000 = $11,000). The premium amortization would be the total premium ($12,928) divided by the bond term (4 years), which does not result in an annual interest expense of $5,500.

If the Amount of a Bond Premium on an Issued