- CFA Exams
- CFA Exam: Level I 2021
- Study Session 8. Financial Reporting and Analysis (3)
- Reading 28. Non-current (Long-term) Liabilities
- Subject 2. Current Market Rates and Fair Value Reporting Option
CFA Practice Question
The selling price of long-term debt is less than the debt's maturity value when the ______
B. effective interest rate is less than the stated interest rate.
C. stated interest rate is greater than the coupon interest rate.
A. stated interest rate is less than the effective interest rate.
B. effective interest rate is less than the stated interest rate.
C. stated interest rate is greater than the coupon interest rate.
Correct Answer: A
When the market rate (effective rate) is higher than the stated rate (coupon rate) of the bonds, buyers will not be willing to pay the face or maturity value because they can make a higher rate elsewhere in the market.
User Contributed Comments 4
| User | Comment |
|---|---|
| kalps | Stated = coupon Effect = market |
| LondonBoy | The bond is issued at a discount and therefore the stated rate (coupon) is less than the effective rate (market rate). |
| YeahMe | The last one is just a confusing statement? stated interest rate = coupon interest rate? |
| danlan | Yeahme, you are right. |