If the price is higher than par, the excess is the ____________; if the price is lower than par, the deficiency is the ____________.

Question

Options

• Abond surplus and bond deficit
• Bbond schedule and bond reported
• Cbond premium and bond discount
• Dbond capitalization and bond depreciated

• A
  18% (3)
• B
  6% (1)
• C
  71% (12)
• D
  6% (1)

Explanation

Option C is correct because bond premium and bond discount are the standard accounting terms for these exact scenarios: when a bond sells above its face (par) value, the excess amount paid is called a premium; when it sells below par, the shortfall is called a discount. These terms appear on balance sheets and directly affect how bond interest expense is amortized over the bond's life.

Why the others are wrong:

• A (surplus/deficit) - these are budget or equity terms, not bond pricing vocabulary
• B (schedule/reported) - "bond schedule" refers to an amortization table, not a price relationship; "bond reported" is not a standard term at all
• D (capitalization/depreciated) - these relate to asset valuation and long-term cost allocation, not bond pricing

Memory tip: Think of buying something on sale vs. paying extra. If you pay more than the sticker price (par), you paid a premium - just like a premium product costs extra. If you pay less, you got a discount - like a clearance sale. Bond pricing works the same way.

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