Which of the following statement most accurately r
Which of the following statement most accurately reflects the effective interest method of amortizing bond premium and discount?
A. using the effective interest method results in a different interest expense each period.
B. The coupon interest rate is the market interest rate at the time the debt was issued.
C. A bond sells at a premium when the market interest rate exceeds the coupon rate.
参考解答
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2024-10-27 07:14:16
Ans:A.
The effective interest method requires multiplying the yield-to-maturity of the bond by the net book value. The net book value approaches par value as the bond nears maturity. Periodic interest expense increase (decreases) as the bond’s book value increase (decreases).
B is incorrect. The coupon interest rate for a bond may be higher or lower than the market interest rate at the date of issuance. Higher coupon rates than market rates indicate a premium to par value, and lower coupon rates than market rates indicate a discount from par value.
C is incorrect. A bond sells at a premium when the market interest rate is less than the coupon t\rate. If the market rate exceeds the coupon rate, the bond will sell at a discount.
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