Distinguish between the following interest rates for bonds payable:
(a) Yield rate.
(b) Nominal rate.
(c) Stated rate.
(d) Market rate.
(e) Effective rate.
(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 the nominal rate.
(d) Market rate―synonymous with yield rate and effective rate.
(e) Effective rate―synonymous with the market rate and yield rate.
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