Sale or Issuance of Bonds at a Premium – Current Liabilities

Suppose the market rate of interest on January 1, 2000, when the Marley Company bonds were sold, is below the coupon rate of 12%. In this case, investors would find the bonds to be quite attractive because the coupon rate is higher than the market interest rate available on other investments of equivalent risk. As a result, the market price of Marley’s bonds increases. The bonds are issued at a premium, in other words, at an amount greater than the principal amount of $100 million.

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