- CFA Exams
- CFA Level I Exam
- 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
When does the selling price of long-term debt equal its maturity value?
A. When the nominal interest rate is equal to the stated interest rate
B. When the effective interest rate is equal to the nominal interest rate
C. When the effective interest rate is equal to the market interest rate
Explanation: When the market rate (or the effective rate) of interest is equal to the stated interest rate, the bonds will sell for their face value (maturity value).
User Contributed Comments 6
| User | Comment |
|---|---|
| kalps | nominal = stated Must = efective (=market) |
| Zahan | effective interest rate is the market rate |
| andrewsutton | Zahan, I think a bond can trade at an effective rate above (or below) "the" market rate depending on its risk profile. |
| flemato347 | bonds are carried on the balance sheet at the market rate on the day of issuance and discounted accordingly over maturity according to the effective interest method. |
| CoffeeGirl | bond on discount = effective interest rate > coupon rate, increase on interest expense. dr. discount on bond payble when issue, and cr discount on bond payble in future. bond on premium = effective interest rate > coupon rate, decreasing interest expense, Cr. discount on bond payable. bond payable = PV of future payment. interest method. final face value paymet = CFF. interest expense = carrying value x market rate. |
| bleublau | EIR=MR |