Why this is mistaken
Cash interest follows contractual terms; effective interest follows opening carrying amount and yield. The difference accretes or amortizes the note.
Where to watch
When this mistake may appear
- The coupon is zero.
- Use face times stated rate.
Check your work
Your work may contain this mistake if:
- Reports no interest on a discounted zero-coupon note.
- Does not accrete discount.
- Fails to tie carrying amount to maturity.