The interest rate that determines the amount of cash paid to the bondholder is referred to as the:
A) effective interest rate
B) contract interest rate
C) market interest rate
D) market price rate

Question

Quizplus · Accepted Answer

The contract interest rate is the rate that is agreed upon between the issuer of the bond and the bondholder, and it determines the amount of cash paid to the bondholder. The effective interest rate takes into account any additional costs or fees associated with owning the bond, while the market interest rate refers to the rate of return demanded by investors for investing in similar bonds in the market. The market price rate is not a commonly used term in finance.

The Interest Rate That Determines the Amount of Cash Paid