The market interest rate, rather than the stated interest rate, determines the present value of the future cash outflows related to a bond issue.

Question

Quizplus · Accepted Answer

The market interest rate, also known as the effective interest rate or yield, reflects the current return required by the market and is used to calculate the present value of the bond's future cash flows, including coupon payments and principal repayment. The stated interest rate, or coupon rate, is fixed and does not affect the bond's present value calculation.

The Market Interest Rate, Rather Than the Stated Interest Rate