When interest rates have increased and bonds are retired before maturity,market value is
A)below book value generating an accounting gain.
B)below book value generating an accounting loss.
C)above book value generating an accounting gain.
D)above book value generating an accounting loss.

Question

Quizplus · Accepted Answer

When interest rates increase, the market value of existing bonds typically falls below their book value. If these bonds are retired before maturity, it results in an accounting gain because the company can repurchase the bonds at a lower market value than their book value.

When Interest Rates Have Increased and Bonds Are Retired Before