If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is $12,928, the annual interest expense is $5,500.

Question

Quizplus · Accepted Answer

The annual interest expense is calculated by subtracting the annual amortization of the bond premium from the annual coupon payment. The coupon payment is $11,000 (11% of $100,000), and the premium amortization is $3,232 ($12,928/4 years), so the interest expense is $7,768 ($11,000 - $3,232), not $5,500.

If the Amount of a Bond Premium on an Issued