The Effective-Interest Method of Amortization of Bond Premiums and Discounts

question 241

Multiple Choice

The effective-interest method of amortization of bond premiums and discounts is considered superior to the straight-line method because it results in a(n)

• A)interest rate that is close to the market interest rate.
• B)uniform rate of interest.
• C)more variable interest rate.
• D)interest rate that increases or decreases slightly over time.

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Definitions:

Income

The money received by an individual or business in exchange for providing a good or service or through investing capital.

Marginal Tax Rate

The amount of tax paid on an additional dollar of income, used in progressive tax systems to ensure higher incomes are taxed at higher rates.

Federal Income Tax

The United States federal government imposes a financial charge on the yearly revenues of individuals, corporations, trusts, and other legal entities.

Marginal Tax Rate

The tax rate that applies to the next additional increment of a taxpayer's taxable income.