Question

Distinguish the differences among the following interest rates for bonds payable: yield rate, nominal rate, stated rate, market rate, and effective rate. Please give an example of each rate applied to actual practice.

Answer 1

(a) Yield rate―the rate of interest actually earned by the bondholders; it is synonymous with the effective and market rates.
(b) Nominal rate―the rate set by the party issuing the bonds and expressed as a percentage of the par value; it is synonymous with the stated rate.
(c) Stated rate―synonymous with nominal rate.
(d) Market rate―synonymous with yield rate and effective rate.
(e) Effective rate―synonymous with market rate and yield rate.