If a Bond Is Issued at a Discount, the Effective

question 71

Multiple Choice

If a bond is issued at a discount, the effective interest rate is most likely ________ the contract interest rate.

• A) higher than
• B) lower than
• C) the same as
• D) Cannot be determined based on information given.

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Definitions:

After-Tax Accounting Rate of Return

A measure of an investment's profitability, taking into account the effects of taxes on the return.

Depreciation

Depreciation is the accounting process of allocating the cost of a tangible asset over its useful life, reflecting wear and tear, deterioration, or obsolescence.

Operating Costs

Operating Costs are expenses associated with the day-to-day functions of an organization, excluding direct material and labor costs.

Tax Rate

The rate at which a person or company is taxed by the state.