What Is the Effective Annual Rate of Interest on the Bonds

question 34

Multiple Choice

What is the effective annual rate of interest on the bonds?

• A)3%.
• B)4%.
• C)6%.
• D)8%.($344,632 / $11,487,747) 2 = 6%

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Definitions:

Indirect Method

A technique used in cash flow statement preparation, adjusting net income for changes in accounts receivable, accounts payable, and depreciation to calculate cash flow from operating activities.

Operating Activities

Transactions and other events that enter into the determination of net income, including all activities not classified as investing or financing activities in cash flow analysis.

Net Income

The total earnings of a company after all expenses and taxes have been deducted from revenue.

Investing Activity

Transactions that involve purchasing or selling long-term assets and investments, which are reported in the investing section of a company's cash flow statement.