The effective interest rate properly reflects the effective cost of borrowing at the ________.
A) stated rate for the bonds
B) current market rate each year
C) historical market rate at the date the bonds sold
D) current stated rate for bonds with the same bond rating

Question

Quizplus · Accepted Answer

The effective interest rate reflects the cost of borrowing based on the historical market rate at the time the bonds were issued, as it accounts for the actual interest expense incurred over the life of the bond.

The Effective Interest Rate Properly Reflects the Effective Cost of Borrowing