The Effective Interest Method of Amortization of Bond Premiums and Discounts

question 31

Multiple Choice

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

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

---

Definitions:

Quality Reduction

A decrease in the standard or grade of products or services, often as a cost-saving measure by producers.

Prospect Theory

A behavioral economic theory that describes how people choose between probabilistic alternatives that involve risk, where the probability of outcomes is known.

Marginal Disutility

The added dissatisfaction or inconvenience experienced by consuming one more unit of a good or service.

Marginal Utility

The extra utility a consumer obtains from the consumption of 1 additional unit of a good or service; equal to the change in total utility divided by the change in the quantity consumed.