Interest expense is computed annually when a bond is issued for other than its face value.For a bond issued at a premium, how will this component change as the bond approaches maturity?
A) decrease
B) increase
C) remain constant
D) not enough information given to decide

Question

Quizplus · Accepted Answer

Interest expense for a bond issued at a premium will decrease as the bond approaches maturity because the premium reduces the effective interest rate on the bond. This means that as the bond approaches maturity, the carrying value of the bond will decrease towards its face value, resulting in a lower interest expense.

Interest Expense Is Computed Annually When a Bond Is Issued