You graphed bond interest expense and interest paid over the life of a bond. You noticed that the interest expense line was below the interest paid line. Identify the statement below that is best described by the graph you drew.
A) The bond was issued at a discount.
B) Discounted interest amortization is used.
C) The bond was issued at par.
D) Effective interest amortization is used.
E) The bond was issued at a premium.

Question

Quizplus · Accepted Answer

When a bond is issued at a premium, the interest expense is lower than the interest paid because the premium is amortized over the life of the bond, reducing the interest expense.

You Graphed Bond Interest Expense and Interest Paid Over the Life