-Refer to Figure 2

question 75

Multiple Choice

-Refer to Figure 2.15 to answer this question.Assume that there is a shortage of 60 units.What does this mean?

• A)The price must be $800.
• B)The price must be above equilibrium.
• C)The price must be $1,200.
• D)The price must be $600.

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Definitions:

Effective-Interest Method

A technique of calculating the amortized cost of a bond and the amount of interest expense over its life, correcting for any differences between the issue price and the redemption value.

Interest Expense

Interest expense is a cost incurred by an entity for borrowed funds, reflected on the income statement.

Effective-Interest Method

A method of calculating the interest expense on a bond that factors in the bond's book value and yield to maturity.

Discounted Bond Issue

The sale of bonds for less than their face value, typically to compensate investors for taking on additional risk or for interest rates being higher than the bond's coupon rate.