Which of the Following Statements About Bond Premiums or Discounts

question 249

Multiple Choice

Which of the following statements about bond premiums or discounts is correct?

• A)A discount on a bond reduces the amount that the issuer has to repay to the lenders.
• B)A premium on a bond increases the interest expense of the loan to the issuer.
• C)A premium on a bond increases the amount that the issuer has to repay to the lenders.
• D)A discount on a bond increases the interest expense of the loan to the issuer.

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Definitions:

Market Rate

The prevailing interest rate available in the marketplace for loans or the current price of a commodity, security, or currency.

Time to Maturity

The remaining period until a financial instrument, such as a bond, reaches its due date and the principal must be repaid.

Annuities Due

Annuities Due refer to a series of equal payments made at the beginning of consecutive periods over a fixed length of time, often used in finance to represent contracts that require such payments.

Ordinary Annuities

Ordinary annuities are a series of equal payments made at the end of consecutive periods over a fixed length of time.