Interest Expense Is Computed Annually When a Bond Is Issued

question 203

Multiple Choice

Interest expense is computed annually when a bond is issued for other than its face value. For a bond issued at a discount, how will this component change as the bond approaches maturity?

• A) Decrease
• B) Increase
• C) Remain constant
• D) Not enough information given to decide.

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Definitions:

Trustee Account

A type of account managed by a trustee who holds assets for the benefit of another party, ensuring the assets are managed in the beneficiary's best interest.

Short-term Securities

Financial instruments that are typically debt securities with maturities of one year or less, used for short-term financing needs.

Interest Rate Sensitive

Pertaining to assets or investments that are affected by changes in interest rates.

Treasury Bills

Short-term government securities with maturities of one year or less, sold at a discount and redeemed at face value at maturity.