C is corrent. Since the effective rate is higher than the coupon rate, the effective interest will be greater than the cash paid to the bondholders. If the stated rate of interest on a bond is less than the effective rate, the bond will sell at a discount. The interest paid is the coupon rate times the maturity value of the bond. The effective interest is the effective interest rate times the carrying value of the bond.
A is incorrect. Since the effective rate is higher than the coupon rate, the effective interest will be greater than the cash paid to the bondholders. If the stated rate of interest on a bond is less than the effective rate, the bond will sell at a discount. The interest paid is the coupon rate times the maturity value of the bond. The effective interest is the effective interest rate times the carrying value of the bond.
A is incorrect. Since the effective rate is higher than the coupon rate, the effective interest will be greater than the cash paid to the bondholders. If the stated rate of interest on a bond is less than the effective rate, the bond will sell at a discount. The interest paid is the coupon rate times the maturity value of the bond. The effective interest is the effective interest rate times the carrying value of the bond.
D is incorrect because the entry would involve a credit to bond discount.
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