Asked by Ashley Hinton on Jun 09, 2024
Verified
If bonds are issued at a premium the carrying value of the bonds will be greater than the face value of the bonds for all periods prior to the bond maturity date.
Premium
The amount paid in excess of a standard cost or the face value of a financial instrument, often associated with insurance policies, bonds, and options.
Carrying Value
The book value of assets and liabilities as represented in the financial statements, excluding the market value.
- Ascertain the effects on the book value of bonds when they are issued at a premium or discount.
Verified Answer
CS
Candice SpencerJun 12, 2024
Final Answer :
True
Explanation :
When bonds are issued at a premium, it means that the market interest rate is lower than the coupon rate on the bond. Therefore, investors are willing to pay more than the face value of the bond to receive the higher coupon payments. As a result, the carrying value of the bonds will be greater than the face value for all periods prior to maturity, as the premium paid by investors is amortized over the life of the bond.
Learning Objectives
- Ascertain the effects on the book value of bonds when they are issued at a premium or discount.
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