At an Interest Rate of 10 Percent, Which of the Following

question 57

Multiple Choice

At an interest rate of 10 percent, which of the following sequences of cash flows should you prefer?

• A)Option A
• B)Option B
• C)Option C
• D)Option D

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Definitions:

Compound-interest

Interest computed on both the original sum invested or loaned, as well as on the interest that has been added to this principal amount over earlier periods.

GIC

A Guaranteed Investment Certificate, a Canadian investment that offers a guaranteed rate of return over a fixed period.

Investment

The allocation of resources, such as time, money, or effort, in hope of generating a future benefit or profit.

Strip Bond

A debt security that has had its main components, namely the coupon and the principal, separated to be sold individually as zero-coupon bonds.