When a Bond's Issue Price Is Greater Than Its Face

question 27

Multiple Choice

When a bond's issue price is greater than its face value, the actual rate of interest that must be paid is called the

• A) effective interest rate.
• B) stated interest rate.
• C) coupon interest rate.
• D) prime interest rate.

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Definitions:

Preferred Shares

A class of ownership in a corporation that has a higher claim on its assets and earnings than common shares, usually with fixed dividends.

Classified

In accounting, this term refers to the arrangement of items in financial statements into categorized sections and subsections to enhance clarity and understanding.

Wholly Owned Subsidiary

A company whose entire share capital is 100% owned by another company, the parent company.

Straight-Line Method

A method of calculating depreciation or amortization by equally distributing the cost of an asset over its expected useful life.