When a bond is sold at a premium the
A)effective interest rate is less than the stated rate.
B)effective interest rate is greater than the stated rate.
C)effective interest rate relative to the stated rate is not known.
D)interest expense during the life of the bond exceeds the amount of cash interest payments during the life of the bonD.

Question

Quizplus · Accepted Answer

When a bond is sold at a premium, it means the bond's selling price is higher than its face value. This occurs because the bond's stated interest rate is higher than the market interest rate. As a result, the effective interest rate, which is the actual rate earned by the bondholder, is less than the stated rate. This is because the bondholder pays more for the bond upfront but still receives the same nominal interest payments, effectively reducing the yield.

When a Bond Is Sold at a Premium the