A Company Issued 10-Year, 9%, $1,000,000 Bonds Paying Interest on an Annual

A company issued 10-year, 9%, $1,000,000 bonds paying interest on an annual basis, at a premium. Which one of the following statements is true?

A) The annual interest expense on the bonds will be greater than the amount of interest payments to bondholders each year.
B) The annual interest expense on the bonds will be less than the amount of interest payments to bondholders each year.
C) The issue price will be less than $1,000,000.
D) The cash paid to bondholders will be based on the market rate of interest.

Correct Answer:

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