The total cost of borrowing is increased only if the

Question

Quizplus · Accepted Answer

If bonds are issued at a discount, then the total cost of borrowing will be increased as the company will have to pay back more than the amount borrowed due to the discounted sale of bonds. In contrast, if bonds are issued at a premium, then the total cost of borrowing will be reduced as the company receives more money upfront than the face value of the bonds, which offsets the higher interest payments. Selling bonds at face value does not impact the total cost of borrowing, and if the market interest rate is less than the contractual interest rate, the cost of borrowing may be lower, not higher.

The Total Cost of Borrowing Is Increased Only If the