Selling the bonds at a premium has the effect of
A) causing the total cost of borrowing to be higher than the bond interest paid.
B) causing the total cost of borrowing to be lower than the bond interest paid.
C) raising the effective interest rate above the state interest rate.
D) increasing the amount of cash paid for interest each 6 months.

Question

Quizplus · Accepted Answer

Selling bonds at a premium means the bonds are sold for more than their face value, which reduces the total cost of borrowing because the premium received offsets some of the interest expense.

Selling the Bonds at a Premium Has the Effect of