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Identify three differences between a bond issued at a discount versus a bond issued at a...

Identify three differences between a bond issued at a discount versus a bond issued at a premium, using the effective-interest method of amortization.

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Answer #1

Differences:

Bond issued at a discount Bond issued at a premium
1. Issue price is lower than the face/maturity value. 1. Issue price is higher than the face/maturity value.
2. Coupon rate of interest is lower than the market rate of interest. 2. Coupon rate of interest is higher than the market rate of interest.
3. The carrying value of the bond goes on increasing until maturity date. 3. The carrying value of the bond goes on decreasing until the maturity date.
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