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

question 111

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

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Definitions:

Receivables

Money owed to a business by its customers for goods or services that have been delivered but not yet paid for.

ACP

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A profitability ratio that measures how efficiently a company utilizes its assets to generate operating income.

ROE

Return on Equity, a measure of financial performance calculated by dividing net income by shareholders' equity, indicating how effectively a company uses investments to generate profit.