- 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.