Bonds with a face value of $200,000 were sold at an effective interest rate of 8% to yield cash proceeds in excess of $200,000.It is apparent that the bonds had a:
A)stated interest rate less than 8%.
B)stated interest rate greater than 8%.
C)effective interest rate less than 8%.
D)effective interest rate greater than 8%.

Question

Quizplus · Accepted Answer

Since the effective interest rate is higher than the stated interest rate, it means that the bonds were sold at a premium. This is only possible if the stated interest rate is higher than the effective interest rate. Therefore, the answer is option B - stated interest rate greater than 8%.

Bonds with a Face Value of $200,000 Were Sold at an Effective