Imagination Industries plans to issue 8-year, 8%, $400,000 bonds paying interest on an annual basis, at a $5,760 premium. Which one of the following statements is true?
A) The cash paid to bondholders will be $5,760 each interest period
B) Imagination will receive $394,240 as the issue price
C) Imagination's annual interest expense on the bonds will be greater than the amount of interest payments to bondholders each year
D) Imagination's annual interest expense on the bonds will be less than the amount of interest payments to bondholders each year

Question

Quizplus · Accepted Answer

Since the premium is a benefit the issuer receives at issuance, the interest expense will be less than the amount of interest payments to bondholders each year.

Imagination Industries Plans to Issue 8-Year, 8%, $400,000 Bonds Paying