Answer:
C.Greater than the effective interest.
Explanation:
<u>example</u>
face value 1,000,000
issued at 1,100,000
premium of 100,000
the bond rate is 8%
and the effective rate is 6%
1,100,000 x 6%/2 = 33,000 interest expense
cash proceeds 1,000,000 x 8%/2 = 40,000 cash
amortization on premium 40,000 - 33,000 = 7,000
The cash payment (40,000) are greater than the effective interest (33,000)
If that wouldn't be the case, he premium won't depreciate
