Final answer:
Taxpayers can indeed choose to amortize the premium on bonds issued at a premium, which is true. Additionally, if the interest rates rise, the value of an existing bond with a lower rate generally decreases, and it would be expected to sell for less than its face value.
Step-by-step explanation:
If the bond was issued at a premium, taxpayers can elect to amortize the premium. This means that the answer to whether taxpayers can elect to amortize the premium on a bond issued at a premium is True.
When a bond is issued at a premium, it indicates that the bond's purchase price is higher than its face value. The premium arises because the bond's stated interest rate is higher than the prevailing market interest rates when the bond is sold. Taxpayers may choose to amortize this premium over the life of the bond, which reduces the taxable interest income received from the bond each year. Consequently, the amount of premium amortized each year is used to reduce the bond's carrying amount on the books and the interest income on the tax return.
Concerning changes in interest rates, if interest rates rise after the bond's issuance, new bonds would likely offer higher interest payments, causing existing bonds with lower rates to decrease in value. As a result, the price of a previously issued bond would generally be expected to be less than its face value of $10,000 in a scenario where interest rates in the economy increase post-issuance.