Question

The sale of bonds above face value:_________

a. is a rare occurrence.
b. will cause the total cost of borrowing to be less than the bond interest paid.
c. will cause the total cost of borrowing to be more than the bond interest paid.
d. will have no net effect on Interest Expense by the time the bonds mature.

Answer 1

Answer: B. will cause the total cost of borrowing to be less than the bond interest paid

Explanation:

It should be noted that when a bond is sold above the face value, this will result into the total cost of borrowings to be less than the bond Interest that was paid.

The reason for the above is due to the fact that the borrower will not be required to repay the bond premium when the bond matures at its maturity date.

Therefore, the correct option is B.