Werther Incorporated. issued ten-year, 8%, $100,000 bonds paying interest on an

Question

Werther Incorporated. issued ten-year, 8%, $100,000 bonds paying interest on an annual basis, at a $5,200 premium. Which of the following statements is TRUE?

Select one:

a. Weather's annual interest expense on the bonds will be less than the amount of interest payments to bondholders each year.

b. The cash paid to bondholders will be $520 each interest period.

c. Weather will receive $94,800 as the issue price of the bonds.

d. Weather's annual interest expense on the bonds will be greater than the amount of interest payment to bondholders each year.

Explanation / Answer

Solution: Weather's annual interest expense on the bonds will be more than the amount of interest payments to bondholders each year

Explanation: 8%, $100,000 bonds paying interest on an annual basis: 8,000; Premium : 5200. Thus, Weather's annual interest expense on the bonds will be greater than the amount of interest payment to bondholders each year.

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