Effective interest rate VS Market rate of interest

  1. In an issuer’s financial statements, reported interest expense for a bond is com- puted using the:
    A bond’s coupon rate.
    B market rate of interest.
    C effective interest rate.

C is correct. Reported interest expense for a company’s bonds is computed using the effective interest rate, which is the market interest rate at issuance.

At first to me this 2 rates are the same. So the only diff btw these 2 is that Effective interest rate is that the market interest rate at initial period of issuance ? Whereas Market rate of interest will vary along the bond period according the market ? Thank you.

The effective interest rate includes any bond discounts or issuance costs that will be amortized and included in the interest expense.