If the Straight-Line Method of Amortization of Bond Premium or Discount

question 169

Multiple Choice

If the straight-line method of amortization of bond premium or discount is used, which of the following statements is true?

• A) Annual interest expense will increase over the life of the bonds with the amortization of bond premium.
• B) Annual interest expense will remain the same over the life of the bonds with the amortization of bond discount.
• C) Annual interest expense will decrease over the life of the bonds with the amortization of bond discount.
• D) Annual interest expense will increase over the life of the bonds with the amortization of bond discount.

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Definitions:

Central Bank

The primary monetary authority of a country, responsible for regulating the financial system, issuing currency, and controlling inflation and interest rates.

Lender of Last Resort

An institution, usually a central bank, that offers loans to banks or financial institutions that are struggling financially or are considered highly illiquid.

Financial Panics

Instances of widespread fear and anxiety among investors and the general public leading to rapid withdraws from banks or sell-offs in markets, often triggering economic downturns.

Open Market

A freely competitive market in which any buyer or seller can participate, and prices are determined by supply and demand.