ch 10
On September 1, 2014, Banner Co. borrowed $70,000 from the City Bank for five months at 9%. Interest was properly accrued on December 31, 2014. What entry is needed to record the payment of the note and accrued interest on the due date? A. Notes Pay. 70,000 Interest Pay. 2,100 Interest Exp. 525 Cash 72,625 B. Notes Pay. 72,625 Cash 72,625 C. Interest Pay. 2,625 Notes Pay. 70,000 Cash 72,625 D. Interest Exp. 2,625 Notes Pay. 70,000 Cash 72,625
A. Notes Pay. 70,000 Interest Pay. 2,100 Interest Exp. 525 Cash 72,625 Interest is calculated by multiplying the principal times the annual interest rate times the time period the note is outstanding. At December 31, 2014 four months of interest were properly accrued and recognized in the notes payable account. An additional month of interest is recognized at the maturity date to be expensed in 2015.
On December 30, 2014, a company issued a note payable of $50,000, of which $10,000 will be repaid each year. What is the proper classification of this note on the December 31, 2014 balance sheet? A.$10,000 current liability; $40,000 long-term liability B.$50,000 current liability C.$50,000 long-term liability D.$10,000 long-term liability; $40,000 current liability
A.$10,000 current liability; $40,000 long-term liability $10,000 of the $50,000 is a current maturity of long-term debt.
On January 1, Pierce Corporation issues $500,000, 5-year, 12% bonds at 96 with interest payable on January 1. What is the carrying value of the bonds at the end of the third interest period if amortization is $4,000 per year? A.$492,000 B.$488,000 C.$472,000 D.$464,000
A.$492,000 After three interest periods, the carrying value of the bonds will have increased by three times the annual discount amortization. The carrying value is the original carrying value plus the three years of discount amortization.
Eyes Inc. issues a $1,000,000, 12%, 20-year mortgage note on December 31, 2012. The terms provide for semiannual installment payments of $66,462 which only covers interest and part of the principal. What is the the mortage balance after the first semiannual payment? A.$993,538 B.$980,000 C.$986,688 D.$939,835
A.$993,538
Pima Co. has the following selected accounts after posting adjusting entries: Accounts payable $14,000 6-month, 8%, note payable 24,000 Income tax expense 5,000 Accumulated depreciation-building 23,000 3-year, 10% note payable 200,000 Salaries and wages payable 28,000 Mortgage payable ($20,000 due next year) 1,000,000 Rent payable 6,000 Current assets are $256,000 at year-end. How much is Pima's current ratio at year-end? A.2.78 B.3.56 C.0.88 D.Some other amount
A.2.78 Liabilities are classified as current if they will be paid with current assets within one year or the current operating cycle, whichever is longer. The current ratio is current assets divided by current liabilities.
A $500,000 bond is retired at 101¼ when the unamortized premium is $4,500. Which of the following is one effect of recording the retirement? A.A $1,750 loss B.A $6,250 gain C.A $6,250 loss D.A $10.806 loss
A.A $1,750 loss The difference between the carrying value and the cash used to redeem the bonds is a gain or loss on redemption. The bonds were retired for $506,250 ($500,000 × 101¼%) and the carrying value is $504,500, resulting in a loss of $1,750.
A $500,000 bond is retired at 97 when the carrying value of the bond is $483,000. Which of the following is one effect of recording the retirement? A.A $2,000 loss B.A $15,000 gain C.A $15,000 loss D.A $2,000 gain
A.A $2,000 loss The difference between the carrying value and the cash used to redeem the bonds is a gain or loss on redemption.
How is the market value of a bond issuance determined? A.By adding the present value of the principal amount to the present value of the interest payments B.By computing the present value of the principal C.By computing the present value of the interest payments D.By adding the face value of the principal amount to the stated value of the interest payments
A.By adding the present value of the principal amount to the present value of the interest payments Bonds involve the present value of two streams of cash flows.
Which of the following is not a measure of liquidity? A.Debt to total assets ratio B.Working capital C.Current ratio D.Current cash debt coverage
A.Debt to total assets ratio Debt to total assets ratio measures solvency which is the the ability of a company to survive over a long period of time.
Which of the following is a criterion for the classification of a liability as current? I. It is a debt that can be paid from existing current assets. II. It is a debt that can be paid through the creation of other current liabilities. III. It must be paid within one year or the operating cycle, whichever is shorter. A.I and II B.II and III C.I and III D.I, II, and III
A.I and II A current liability is a debt the company reasonably expects to pay (1) from existing current assets or through the creation of other current liabilities, and (2) within the next year or the operating cycle, whichever is longer.
What is the nature of a bond premium? A.It reduces the cost of borrowing. B.It increases the cost of borrowing. C.It doesn't change the cost of borrowing. D.None of the above.
A.It reduces the cost of borrowing. The sale of bonds above face value causes the total cost of borrowing to be less than the bond interest paid because the borrower receives the entire premium when the bonds are issued, and pays only periodic interest payments and the face value at the maturity date.
Which is the most common way to present current liabilities on the balance sheet? A.Notes payable are listed first. B.Current maturities of long-term debt are listed first. C.By order of magnitude. D.By order of maturity date.
A.Notes payable are listed first. Notes payable are usually listed first followed by accounts payable.
Which of the following is not a typical current liability? A.Prepaid rent B.Federal unemployment taxes payable C.Unearned passenger ticket revenue D.Current maturities of long-term debt
A.Prepaid rent A current liability is a debt the company reasonably expects to pay (1) from existing current assets or through the creation of other current liabilities, and (2) within the next year or the operating cycle, whichever is longer. Unearned passenger ticket revenue is usually a current liability.
Cuso Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, what does this indicate? A.The contractual interest rate exceeds the market interest rate. B.The market interest rate exceeds the contractual interest rate. C.The contractual interest rate and the market interest rate are the same. D.No relationship exists between the market and contractual rates.
A.The contractual interest rate exceeds the market interest rate. When the contractual interest rate and the market rate are the same, the bonds will be issued at face value not at a premium or discount.
A company must accrue a contingency if the company can determine a reasonable estimate of the loss and the loss is deemed probable. A.True B.False
A.True A company must accrue a liability for a contingency if the company can determine a reasonable estimate of the loss and the loss is deemed probable.
When a bond premium is amortized over time, the carrying value of the bonds decreases over time. A.True B.False
A.True The carrying value is equal to bond premium plus face value. Since the premium balance decreases over time and the face value remains constant, the carrying value decreases over time.
Unearned revenue is a type of current liability. A.True B.False
A.True Unearned revenue indicates that a service or product needs to be provided in the future.
The time period for classifying a liability as current is one year or the operating cycle, whichever is A.longer. B.shorter. C.probable. D.possible.
A.longer. Liabilities are classified as current if they will be paid with current assets within one year or the current operating cycle, whichever is longer, not probable.
Goggle Inc. sells 10%, 10-year bonds with a face value of $100,000 for $98,000. Using the effective interest amortization method, how much is the interest expense to be recorded for the first year if the effective interest rate is 10.53%? A.$10,000 B.$10,319 C.$9,800 D.$10,530
B.$10,319 The bond interest expense equals the effective interest rate times the bonds carrying value.
Buttner Company borrows $88,500 on September 1, 2014, from Harrington State Bank by signing an $88,500, 12%, one-year note. How much is accrued interest at December 31, 2014? A.$2,655 B.$3,540 C.$4,425 D.$10,620
B.$3,540 Interest is calculated by multiplying the principal times the annual interest rate times the time period the note is outstanding. At December 31, four months of interest should be accrued.
Andre Company collected $4,515 from cash sales to customers, which includes both sales revenue and 5% sales taxes. How much should be recognized as sales revenue? A.$4,000 B.$4,300 C.$4,289.25 D.$4,515
B.$4,300 The amount of sales can be computed by dividing total cash received by one plus the sales tax rate of 5%.
Sensible Insurance Company collected a premium of $18,000 for a 1-year insurance policy on April 1. What amount should Sensible report as a current liability for Unearned Insurance Premiums at December 31? A.$0 B.$4,500 C.$13,500 D.$18,000
B.$4,500 The portion of the premiums not yet earned should be recognized as a liability by Sensible.
On January 1, Forever Ceramics issued $1,000,000, 9% bonds for $939,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. The company uses the effective-interest method of amortizing bond discount. At the end of the first year, how much should Forever Ceramics report as unamortized bond discount? A.$54,900 B.$57,100 C.$51,610 D.$51,000
B.$57,100 The bond interest expense equals the effective interest rate times the bonds' carrying value.The cash paid is the stated interest rate times the face amount of the bonds. The difference is the amount amortized for one year.
On January 1, 2014, $5,000,000, 10-year, 8% bonds were issued at $5,150,000. Interest is paid each January 1 and July 1. The straight-line method of amortization is used to amortize the premium. How much is the monthly amortization? A.$15,000 B.$7,500 C.$3,333 D.$1,500
B.$7,500 The premium is amortized or is divided equally over the 10-year term of the bonds. The issue price of the bonds less the face amount of the bonds is the amount of the premium.
Kant Corporation retires its $100,000 face value bonds at 105 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $103,745. Which of the following is part of the entry to record the bond redemption? A.A credit of $3,745 to Loss on Bond Redemption B.A debit of $3,745 to Premium on Bonds Payable C.A credit of $1,255 to Gain on Bond Redemption D.A debit of $5,000 to Premium on Bonds Payable
B.A debit of $3,745 to Premium on Bonds Payable The entry removes the face amount of the bonds from the Bonds Payable account, removes the remaining Premium on Bonds Payable, records the cash paid on retirement, and recognizes a gain or loss on redemption for the difference.The entry to record this transaction will have debits to Bonds Payable for $100,000, Premium on Bonds Payable for $3,745 and Loss on Retirement for $1,255. The credit will be to cash for $105,000.
Tanner, Inc. issued a 10%, 5-year, $100,000 bond when the market rate of interest was 12%. At what value will the bond sell? A.Face value B.A premium C.A discount D.Par
B.A premium When the contractual interest rate is greater than the market interest rate, the bond will sell at a premium.
Which one of the following is not a typical current liability? A.Sales taxes payable B.Bonds payable C.Unearned revenue D.FICA taxes payable
B.Bonds payable Unearned revenue is usually a current liability. Subscriptions or season tickets paid for in advance are good examples.
Which is the first step in amortizing a bond discount under the effective-interest method? A.Compute the bond interest paid. B.Compute the bond interest expense. C.Compute the straight-line depreciation amount. D.Compute the amortization amount.
B.Compute the bond interest expense.
Federal unemployment taxes are paid by both the employer and the employee. A.True B.False
B.False This statement is false. Federal unemployment taxes are paid only by the employer, not both the employer and the employee.
If the contractual rate of interest is lower than the market rate of interest, bonds will sell at a premium. A.True B.False
B.False This statement is false. If the contractual rate of interest is lower than the market rate of interest, bonds will sell at a discount.
Sales taxes are an expense to the retailer. A.True B.False
B.False This statement is false. Sales tax is an expense borne by the buyer and collected by the retailer who records the tax as a liability.
The market price of a bond is equal to the present value of the bond's principal. A.True B.False
B.False This statement is false. The market price of a bond is the sum of the present value of the bond's principal and the present value of the interest payments discounted at the market interest rate.
What is the effect of amortizing a bond discount? A.It decreases bond interest expense. B.It increases the carrying value of the bonds. C.There is no effect on the bond interest expense. D.It decreases the maturity value of the bonds.
B.It increases the carrying value of the bonds. The amortization of a bond discount increases bond interest expense relative to the contractual amount of interest.
Which one of the following is not a typical current liability? A.Interest payable B.Mortgages payable C.Salaries payable D.Current maturities of long-term debt
B.Mortgages payable A current liability is a debt the company reasonably expects to pay (1) from existing current assets or through the creation of other current liabilities, and (2) within the next year or the operating cycle, whichever is longer. Salaries payable are always due within the operating cycle.
Ozone Inc. sells bonds with a face value of $1,000,000 and a contract interest rate of 9% for $800,000. The bonds will mature in 10 years. Using the straight line method of amortization of the bonds' discount, how much interest expense will be recognized in year 1? A.$90,000 B.$108,000 C.$110,000 D.$70,000
C.$110,000 The contractual interest rate times the face value of the bonds is one component of interest expense. The discount amortization is the second component which is divided equally over the term of the bonds., and then added to the cash interest expense.
On January 1, Anthony Corporation issued $1,000,000, 14%, 5-year bonds with interest payable on December 31. The bonds sold for $1,072,096. The market rate of interest for these bonds was 12%. On the first interest date, using the effective-interest method, how much is the debit entry to Bond Interest Expense? A.$120,000 B.$125,581 C.$128,652 D.$140,000
C.$128,652 The bond interest expense equals the effective interest rate times the bonds carrying value.The cash paid is the stated interest rate times the face amount of the bonds.
Sosa Corporation issued 10-year bonds with a face value of $400,000 and a contractual rate of interest of 6% at 99 on July 1. What is the total cost of borrowing for Sosa Corporation? A.$640,000 B.$400,000 C.$244,000 D.$240,000
C.$244,000
Toggle Inc. sells 10%, 10-year bonds with a face value of $100,000 for $102,000. Using the effective interest amortization method, how much is the interest expense to be recorded for the first year if the effective interest rate is 9.47%? A.$12,000 B.$9,470 C.$9,659 D.$10,201
C.$9,659 The bond interest expense equals the effective interest rate times the bonds carrying value.
Tyes Inc. issues a $1,000,000, 12%, 20-year mortgage note on December 31, 2014. The terms provide for semiannual installment payments of $66,462 which only covers interest and part on the principal. What is the principal balance after the second semiannual payment? A.$993,538 B.$980,000 C.$986,688 D.$939,835
C.$986,688 The semiannual interest is the interest rate times the principal times the portion of the year since the last payment was made. The principal is reduced by the difference between the payment and the interest component. Since the question asks about the balance after the second payment, the interest for the second payment will be based on the principal at the end of the first payment period.
In a recent year, Day Corporation had net income of $150,000, interest expense of $30,000, and tax expense of $20,000. What was Day Corporation's times interest earned for the year? A.5.00 B.4.00 C.6.67 D.7.50
C.6.67 Times interest earned is computed by dividing income before interest and taxes by interest expense.
On January 1, Pierce Corporation issues $500,000, 5-year, 12% bonds at 96 with interest payable on January 1. Which of the following is one part of the entry on December 31 to record accrued bond interest and the amortization of the bond discount using the straight-line method? A.A debit to Interest Expense, $57,600 B.A debit to Interest Expense, $60,000 C.A credit to Discount on Bonds Payable, $4,000 D.A credit to Discount on Bonds Payable, $2,000
C.A credit to Discount on Bonds Payable, $4,000 When a discount is amortized, the debit to interest expense is the sum of the cash to be paid plus the amount of discount amortization. The entry to record accrued bond interest and the discount amortization includes a debit to interest expense, a credit to discount on bond payable and a credit to cash.
When a bond is sold at a premium, at what amount is it reported on the balance sheet? A.Premium value B.Interest value C.Carrying value D.Market value
C.Carrying value The face value is presented on the balance sheet with the amount of the unamortized premium added to it. When combined, these two values represent the carrying value of the bonds.
On January 1, 2014, Slice Corp. issues $200,000 of 5-year, 7% bonds at face value. Which one of the following is one effect of the entry to record the issuance of the bonds? A.Credit to Cash for $14,000 B.Debit to Bonds Payable for $200,000 C.Credit to Bonds Payable for $200,000 D.Credit to Bond Interest Expense of $14,000
C.Credit to Bonds Payable for $200,000 The issuance entry for the bonds includes a debit to cash for $200,000 and a credit to bonds payable for $200,000.
Which statement describes the market interest rate? A.It is the contractual interest rate used to determine the amount of cash interest paid by the borrower. B.It is listed in the bond indenture. C.It is the rate investors demand for loaning funds. D.It is the rate stated on the bond certificate that determines the value at which bonds will sell.
C.It is the rate investors demand for loaning funds. The market interest rate is the rate investors demand for loaning funds to the corporation.
WRONG 12. Which of the following is not a commonly used method of presenting current liabilities on the balance sheet? A.In order of magnitude or size B.In order of their maturity C.Listing current debt in the order of oldest first and then chronologically D.Listing currently maturing long-term debt first
C.Listing current debt in the order of oldest first and then chronologically
Bonds payable with a face value of $200,000 and a carrying value of $196,000 are redeemed prior to maturity at 102. Which of the following willl result? A.Loss on redemption of $4,000 B.Gain on redemption of $4,000 C.Loss on redemption of $8,000 D.Gain on redemption of $8,000
C.Loss on redemption of $8,000 The difference between the carrying value and the cash used to redeem the bonds is a gain or loss on redemption. The company had to pay $204,000 for bonds with a carrying value of $196,000. The difference between the $204,000 and $196,000 is the loss on redemption.
What term is used for bonds that have specific assets pledged as collateral? A.Callable bonds B.Convertible bonds C.Secured bonds D.Discount bonds
C.Secured bonds Secured bonds are those that have specific assets of the issuer pledged as collateral.
The Jacksonville Jaguars sell season tickets to NFL football games. There are 10 home games during the season, which runs from August through December. During February, 65,000 season tickets were sold for $12,000,000 cash. Which account will be credited by the Jacksonville Jaguars upon receipt of the $12,000,000? A.Ticket Revenue B.Prepaid Tickets C.Unearned Ticket Revenue D.Tickets Receivable
C.Unearned Ticket Revenue Since the tickets are for future performances, it should be credited to Unearned Ticket Revenue by the Jaguars team.
When a bond is sold at a premium, at what value is it reported on the balance sheet? A.face value minus any amortized premium B.interest value plus any premium C.face value plus any premium D.market value plus face value
C.face value plus any premium The face value, which is the principal of the bond, is netted with any unamortized discount or premium. This net amount is the carrying value.
When recording payroll, A.gross earnings are recorded as salaries and wages payable. B.net pay is recorded as salaries and wages expense. C.payroll deductions are recorded as liabilities. D.net pay is recorded as salaries and wages expense and payroll deductions are recorded as liabilities.
C.payroll deductions are recorded as liabilities. Payroll deductions are recorded as liabilities. Gross earnings are recorded as salaries and wages expenses. Net pay is recorded as salaries and wages payable.
Nashville Rail Co. issued $100,000 in 10-year bonds in 2009 at 103. The final interest payment was made and recorded. What entry will Nashville record for the redemption of its bonds at maturity? O A. Bonds Pay. 103,000 Premium on Bonds Pay. 3,000 Cash 100,000 B. Bonds Pay. 103,000 Cash 103,000 C. Bonds Pay. 103,000 Gain on Bonds Redemption 3,000 Cash 100,000 D. Bonds Pay. 100,000 Cash 100,000
D. Bonds Pay. 100,000 Cash 100,000 When bonds mature, the principal is paid and the obligation removed from the Bonds Payable account. Any discount or premium will be completely amortized by maturity.
Hanlin Enterprises issued 2,000 bonds with a face value of $1,000 each at 97. What is the entry to record the issuance? A. Cash 2,000,000 Discount on Bonds Pay. 60,000 Bonds Pay. 1,940,000 B. Cash 1,940,000 Bonds Pay. 1,940,000 C. Cash 2,060,000 Discount on Bonds Pay. 60,000 Bonds Pay. 2,000,000 D. Cash 1,940,000 Discount on Bonds Pay. 60,000 Bonds Pay. 2,000,000
D. Cash 1,940,000 Discount on Bonds Pay. 60,000 Bonds Pay. 2,000,000 Discount on Bonds Payable is debited for the amount of the discount. Bonds Payable is credited for the face amount of the bonds. The difference is debited to Cash.
The cash register tape indicates cash sales are $2,000 and sales taxes are $155. What journal entry is needed to record this information? A. Cash 2,155 Sales 2,155 B. Cash 2,000 Sales 2,000 C. Cash 2,000 Sales Tax Exp. 155 Sales 2,155 D. Cash 2,155 Sales 2,000 Sales Taxes Pay. 155
D. Cash 2,155 Sales 2,000 Sales Taxes Pay. 155 The sales taxes obligation must be recognized separately as sales taxes are paid by the buyer of the product or service and must be submitted by the retailer to the governmental agency imposing them.
A corporation issued a $50,000, 9%, 4-month note on July 1. The corporation's year-end is September 30. Which one of the following is the adjusting entry for interest on September 30? A. Interest Exp. 1,125 Notes Pay. 1,125 B. Interest Exp. 1,500 Interest Pay. 1,500 C. Interest Exp. 1,500 Notes Pay. 1,500 D. Interest Exp. 1,125 Interest Pay. 1,125
D. Interest Exp. 1,125 Interest Pay. 1,125 Interest is calculated by multiplying the principal times the annual interest rate times the time period the note is outstanding.
On September 1, Banner Co. borrowed $70,000 from the City Bank for five months at 9%. Which journal entry will Banner Co. make on December 31 before issuing its financial statements? A. Interest Exp. 6,300 Notes Pay. 6,300 B. Interest Exp. 1,575 Interest Pay. 1,575 C. Interest Exp. 2,625 Notes Pay. 2,625 D. Interest Exp. 2,100 Interest Pay. 2,100
D. Interest Exp. 2,100 Interest Pay. 2,100 Interest is calculated by multiplying the principal times the annual interest rate times the time period the note is outstanding.
In what denomination are bonds typically issued? A.$1,000,000 B.$100,000 C.$10,000 D.$1,000
D.$1,000 Bonds are normally issued in denominations of $1,000. The face value of the bond issue (number of bonds times the denomination of the bonds) is controlled by the issuer.
Brazen Inc. sells bonds with a face value of $1,000,000 and a contract interest rate of 9% for $1,200,000. The bonds will mature in 10 years. Using the straight line method of amortization of the bonds' premium, how much interest expense will be recognized in year 1? A.$90,000 B.$108,000 C.$110,000 D.$70,000
D.$70,000 The contractual interest rate is 9% × $1,000,000, which is $90,000. The annual bond amortization is $1,200,000 less $1,000,000 divided by 10 years, which is $20,000. The annual interest expense will be $90,000 less $20,000, which results in a debit of $70,000.
At what point and how are sales taxes charged to customers recorded? A.At the time the sale takes place as an expense B.At the time collected from the customer as unearned revenue C.At the time of the sale as revenue D.At the time of the sale as a liability
D.At the time of the sale as a liability Sales taxes are paid by the buyer to the seller, but are not a considered a revenue by the seller. Rather, sales tax is a liability of the seller. The seller is required to collect the sales tax and forward them to the governmental agency.
RS Company borrowed $70,000 on December 1 on a 6-month, 12% note. Which statement is true at December 31? A.Neither the note payable nor the interest payable is a current liability. B.The note payable is a current liability, but the interest payable is not. C.The interest payable is a current liability, but the note payable is not. D.Both the note payable and the interest payable are current liabilities.
D.Both the note payable and the interest payable are current liabilities. A current liability is a debt the company reasonably expects to pay (1) from existing current assets or through the creation of other current liabilities, and (2) within the next year or the operating cycle, whichever is longer.
Four-Nine Corporation issued bonds at par that pay interest every July 1 and January 1. Which one of the following is one effect of the entry to accrue bond interest at December 31? A.Debit to Interest Payable B.Credit to Cash C.Credit to Interest Expense D.Credit to Interest Payable
D.Credit to Interest Payable An interest accrual will increase, not decrease, Interest Expense.
When Jaylo Inc. paid the latest installment on its 20-year mortgage. Out of the $50,000 total payment, $20,000 went towards reducing the principal, and the balance went towards interest. Which of the following is one part of the entry to account for the principal payment? A.Debit Interest Expense for $50,000 B.Debit Mortgage Payable for $50,000 C.Debit Interest Expense for $20,000 D.Debit Mortgage Payable for $20,000
D.Debit Mortgage Payable for $20,000 When an installment payment is made on a mortgage note, the interest is a debit to Interest Expense and the reduction in principal is a debit to Mortgage Payable.
To be classified as a current liability, how or when must a debt be expected to be paid? A.Out of existing current assets B.By creating other current liabilities C.Beyond one year D.Either out of existing current assets or by crediting other current liabilities
D.Either out of existing current assets or by crediting other current liabilities The expected time period for payment of a current liability is one year or the current operation cycle, whichever is longer.
Sales taxes recorded at the time the sale takes place as A.an expense. B.unearned revenue. C.a revenue. D.a liability.
D.a liability. They are not considered to be a revenue by the seller because no service or product was provided by the seller for the amount of the taxes.
A corporation issues $1,000,000 of 8%, 5-year bonds. The 8% rate of interest is called the __________ rate. A.yield B.effective C.market D.contractual
D.contractual Yield, effective, and market rates are different terms to describe the interest rate that an investment can earn in the market.
