When the Effective-Interest Method of Bond Premium Amortization Is Used

question 26

Multiple Choice

When the effective-interest method of bond premium amortization is used, the:

• A) carrying value of the bonds will increase with each amortization.
• B) amount of premium amortized increases with each amortization.
• C) interest payment to bondholders will increase after each interest payment.
• D) interest payment to bondholders will decrease after each interest payment.

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Definitions:

360-Day Year

A financial calculation convention using a simplified year of 360 days to facilitate easier interest calculations.

Exact Interest

A method of calculating interest based on a 365-day year or actual number of days in a loan or investment period, providing a precise interest calculation.

365-Day Year

A conventional method of calculating interest based on a 365-day year, often used in financial calculations.

Estimate Interest

An approximation of the interest amount over a certain period based on a given rate.