Selling the bonds at a premium has the effect of
A) raising the effective interest rate above the stated interest rate
B) attracting investors that are willing to pay a lower rate of interest than on similar bonds
C) causing the interest expense to be higher than the bond interest paid
D) causing the interest expense to be lower than the bond interest paid

Question

Quizplus · Accepted Answer

When bonds are sold at a premium, the interest expense is lower than the bond interest paid because the premium effectively reduces the cost of borrowing over the life of the bond.

Selling the Bonds at a Premium Has the Effect of