Asked by Jessica Green on Jun 20, 2024
Verified
Amortization of a bond premium decreases interest expense recorded by the issuer.
Amortization
The process of spreading out a loan into a series of fixed payments over time, or the gradual write-off of the cost of an intangible asset over its useful life.
Bond Premium
The amount by which the market price of a bond exceeds its face value, typically resulting when market interest rates are lower than the bond's coupon rate.
Interest Expense
The cost incurred by an entity for borrowed funds, reflecting the interest payments on debt obligations.
- Comprehend the principles of bond valuation, interest calculations, and amortization techniques.
Verified Answer
AM
amina majorJun 25, 2024
Final Answer :
True
Explanation :
Amortization of a bond premium decreases the carrying value of the bond over time, which in turn reduces the amount of interest expense the issuer records, because the interest expense is calculated based on the carrying value of the bond.
Learning Objectives
- Comprehend the principles of bond valuation, interest calculations, and amortization techniques.