Final answer:
The total interest expense over the entire life of a bond equals the sum of the interest payments and the total discount. This includes the regular interest paid by the borrower and the reduction in the bond's value due to prevailing interest rates.
Step-by-step explanation:
The total interest expense over the entire life of a bond equals the sum of the interest payments and the total discount. This is because the interest payments represent the regular interest paid by the borrower to the bondholder, and the total discount represents the reduction in the bond's value from its face value due to the prevailing interest rate in the market.
For example, let's consider a simple two-year bond issued for $3,000 at an interest rate of 8%. After the first year, the bond pays interest of $240 (which is $3,000 × 8%). At the end of the second year, the bond pays $240 in interest, plus the $3,000 in principle. So the total interest expense over the life of this bond would be the sum of the interest payments ($240 + $240) and the total discount, which would depend on the prevailing interest rates.