Final answer:
The statement is false; the carrying value of bonds increases over time when a bond premium is amortized. The bond's price reflects the present value of future expected payments and can be affected by interest rate changes and perceived borrower risk.
Step-by-step explanation:
The statement is false. When a bond premium is amortized, the carrying value of the bonds actually increases over time. A bond premium occurs when the bond's stated interest rate is higher than the market interest rate. As a result, the bond will sell for more than its face value. The premium, the amount over face value, is amortized and reduces the interest expense over the life of the bond, but the carrying value (also known as the book value) of the bond increases as the premium amortization is added back to the bond's carrying amount on the balance sheet.
Real-world calculations of bond prices consider the present value of a stream of future expected payments. Furthermore, the pricing of bonds is influenced by the market's assessment of risk level regarding whether the borrower will repay the loan and changes in the prevailing interest rates. As debt increases, so do interest payments which can lead to a growing deficit even if other government spending remains constant.