answersLogoWhite

0


Best Answer

It really depends on how much is the premium paid. Effectively if the premium paid is higher than the par value of the bonds issued, the annual interest expense would be relatively lower. Another perspective is that since that both the bonds and its premium uses effective interest method, considering all factors remain the same, the annual interest expense will remain unchanged. Premium of the bond should be captialized within the holders of the bonds and amortized over the years in which the manner best represents. Issuer of the bonds generally do not captialize the premium of the bond separately. You should also note that the bonds issued are not compound financial instruments or contain any embedded derivates.

User Avatar

Wiki User

15y ago
This answer is:
User Avatar

Add your answer:

Earn +20 pts
Q: XYZ Corp sells its bonds at a premium and applies the effective interest method in amortizing the premium.Do you think the annual interest expense will increase or decrease over the life of the bonds?
Write your answer...
Submit
Still have questions?
magnify glass
imp