An issuer of 2 years maturity bonds with a $100 face value providing a 4% coupon

Question

An issuer of 2 years maturity bonds with a $100 face value providing a 4% coupon rate paid every six months was issued with a premium of $4.

The payment by the issuer of one coupon combined with the amortization of the premium over the life of the bond results in

a decrease in retained profits by $3.

a decrease in retained profits by $4.

a decrease in retained profits by $1.

a decrease in retained profits by $8.

a decrease in retained profits by $3.

a decrease in retained profits by $4.

a decrease in retained profits by $1.

a decrease in retained profits by $8.

Explanation / Answer

Ans Reduction in Retained profit 4

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