You Have a Choice Between Two Investments

question 23

True/False

You have a choice between two investments. Investment A provides your with $1,000 today; investment B provides you with $10,000 in 10 years. Assuming a discount rate of 10%, you would be better off with investment B.

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Definitions:

Yield to Maturity

The expected total yield on a bond when held until it reaches its date of maturity.

Semiannual Coupon

Interest payments made to bondholders twice a year.

Yield

The income return on an investment, such as the interest or dividends received, typically expressed as an annual percentage of the investment cost.

Maturity Bond

A bond at the end of its term, at which point the principal amount is due to be paid back to the bondholder.