What financial effect does a bond issued at a discount have on interest expense over time?

When bonds are issued at a discount, it means that the bonds are sold for less than their face value, and this impacts the way interest expense is accounted for over time. The effective interest rate, which is used to calculate interest expense, is greater than the stated interest rate because the bondholders are receiving an amount less than what will be paid back at maturity.

As the bond matures, the discount is amortized systematically, meaning that the bond issuer will recognize not only the cash interest payments made but also the amortization of the discount as part of interest expense. This results in an increasing interest expense over the life of the bond because each period's interest expense includes the cash interest payment plus the portion of the discount being amortized.

Therefore, as time passes, the total interest expense associated with the bond increases due to the cumulative effect of this amortization, leading to the conclusion that interest expense rises as the bond approaches maturity.