If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be________.

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shalomsigalow6056 shalomsigalow6056

02-08-2022
Business

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If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be________.

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vipinkumar69547 vipinkumar69547 · Answer 1 · 2022-08-10T05:34:11+02:00

If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be greater than if the straight-line method were used.

Amortization of Bond Premium alludes to the amortization of abundance premium paid well beyond the presumptive worth of the Bond. Security has an expressed coupon pace of revenue and pays revenue to the security financial backers in view of such a coupon pace of interest.

It is esteemed at the current worth of premium installments and assumed worth decided in light of the market financing cost. The financial backers pay more than the presumptive worth of the securities when the expressed loan fee likewise called the coupon rate surpasses the market financing cost.

The backer needs to amortize the Bond premium over the existence of the Bond, which, thus, decreases the sum charged to intrigue cost.

Interest expense in the early years will be higher than it would be if the straight-line method were employed if bonds are first issued at a premium and the effective-interest method of amortization is adopted.

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