Asked by Colby Hastings on Jul 28, 2024
Verified
When is interest expense more than interest paid?
A) when bonds are sold at a premium
B) when bonds are sold at par
C) when bonds are sold at a discount
D) when bonds are sold at a yield
Interest Expense
The cost incurred by an entity for borrowed funds over a period.
Interest Paid
The amount of money paid over a specific time period for the use of borrowed funds.
Premium
The amount by which the price of a financial instrument or security, like an insurance policy, bond, or stock, exceeds its face value or nominal value.
- Understand the implications of interest expense either exceeding or being less than the interest paid.
Verified Answer
LN
Leslie NievesAug 02, 2024
Final Answer :
C
Explanation :
When bonds are sold at a discount, the stated interest rate is lower than the market rate. As a result, the effective interest rate is higher than the stated rate, which leads to higher interest expense than the actual interest paid.
Learning Objectives
- Understand the implications of interest expense either exceeding or being less than the interest paid.
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