Werther Incorporated issued tenyear 8 100000 bonds paying in

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.

Solution

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.