When Bonds Are Issued at a Premium, the Total Interest

question 280

Multiple Choice

When bonds are issued at a premium, the total interest cost of the bonds over the life of the bonds is equal to the amount of

• A) interest paid over the life of the bond.
• B) interest paid over the life of the bond plus the amount of premium at sale point.
• C) interest paid over the life of the bond minus the amount of premium at sale point.
• D) premium at sale point.

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Definitions:

Strike Price

The specified price at which the holder of an option can buy (in the case of a call option) or sell (in the case of a put option) the underlying security.

Market Price

The ongoing price point for buying or selling a service or asset in the market.

Put Option

An agreement that allows the holder to sell a predetermined quantity of a particular asset at an agreed-upon price before a certain deadline, without being required to do so.

Exercise Price

The exact price at which an option's holder is allowed to purchase (for a call option) or sell (for a put option) the asset underlying the option.