The effective interest rate on bonds is higher than the stated rate when bonds sell

Question

Quizplus · Accepted Answer

The effective interest rate (also known as the yield or market rate) on bonds is higher than the stated rate when bonds sell below face value. This is because the investor pays less than the face value to buy the bond but will receive the full face value at maturity, in addition to the interest payments, which results in a higher overall return compared to the stated interest rate.

The Effective Interest Rate on Bonds Is Higher Than the Stated