A USTreasury Bond Will Pay a Lump Sum of $1,000 Exactly

question 137

Multiple Choice

A U.S.Treasury bond will pay a lump sum of $1,000 exactly 3 years from today.The nominal interest rate is 6%, semiannual compounding.Which of the following statements is CORRECT?

• A) The PV of the $1,000 lump sum has a higher present value than the PV of a 3-year, $333.33 ordinary annuity.
• B) The periodic interest rate is greater than 3%.
• C) The periodic rate is less than 3%.
• D) The present value would be greater if the lump sum were discounted back for more periods.
• E) The present value of the $1,000 would be smaller if interest were compounded monthly rather than semiannually.

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Definitions:

Predicting Behaviour

The process of forecasting individuals' actions based on factors such as past behavior, psychological tendencies, or situational variables.

Original Fishbein Model

An attitude model suggesting that an individual's attitude towards an object is a function of their beliefs about and evaluation of several of its attributes.

Descriptive Norm

Norms that convey information about what is commonly done in specific situations.

Immediate Setting

The direct physical environment surrounding an individual at any given time, which can influence behavior and perception.