A rate based on the average market yield on outstanding obligations of the United States with maturities between three and nine years, and it is published monthly is known as:

Question

Options

• Aaverage market interest rate
• Btax discounting federal rate
• Cmidterm applicable federal rate
• Dnone of the above

• A
  3% (1)
• B
  12% (4)
• C
  76% (26)
• D
  9% (3)

Explanation

Option C is correct because the Applicable Federal Rate (AFR) is set by the IRS and comes in three tiers: short-term (under 3 years), mid-term (3–9 years), and long-term (over 9 years). The midterm AFR specifically is based on the average market yield of U.S. obligations with maturities of 3–9 years and is published monthly in IRS revenue rulings.

Why the distractors are wrong:

• A (average market interest rate) is a vague, generic term - it has no specific legal or regulatory definition matching this description.
• B (tax discounting federal rate) is fabricated; no such official rate exists in U.S. tax law.
• D (none of the above) is incorrect because C is a real, well-defined rate.

Memory tip: Think "mid" = middle maturity range. The three AFR tiers map neatly to short (under 3), mid (3–9), and long (over 9) - and all three are published monthly by the IRS. If you remember the 3–9 year bracket, you lock in "midterm."

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