The rate of interest used to discount the future cash payments on a debt to the cash equivalent borrowed is least likely to be described by which of the following terms:
A)Prevailing interest rate.
B)Effective interest rate.
C)Stated interest rate.
D)Yield interest rate.

Question

Quizplus · Accepted Answer

The term "stated interest rate" is least likely to be used in this context because it refers to the nominal interest rate specified in the loan agreement, which does not necessarily reflect the actual rate at which future cash payments are discounted to their present value. The other terms (prevailing, effective, and yield interest rates) are more directly related to the process of discounting future cash flows to determine the present value of a debt.

The Rate of Interest Used to Discount the Future Cash