All else equal, when a company issues bonds at a premium, the debt/equity ratio will show: A. an increasing trend over the life of the bond. B. stable trend over the life of the bond. C. a decreasing trend over the life of the bond.
Net book value of debt decreases from amortization of the premium, while stockholders’ equity increases (due to increasing earnings). This decreases debt/equity ratio over the life of the bond.
