Selling the bonds at a premium has the effect of 1. causing the total cost of borrowing to be lower than the bond interest paid.

Selling the bonds at a premium has the effect of 1. causing the total cost of borrowing to be lower than the bond interest paid. 2. causing the total cost of borrowing to be higher than the bond interest paid. 3. attracting investors that are willing to pay a lower rate of interest than on similar bonds. 4. raising the effective interest rate above the stated interest rate.

Solution: Selling the bonds at a premium has the effect of : 1. causing the total cost of borrowing to be lower than the bondinterest paid. 2. causing the total cost of borrowing to be higher than…