Your Investment Account Has an Interest Rate of 10% Compounded

question 80

Multiple Choice

Your investment account has an interest rate of 10% compounded semi-annually.This is the equivalent of an effective annual interest rate of

• A)1.1025%.
• B)5%.
• C)10%.
• D)10.25%.

---

Definitions:

Cost of Equity

The return a company theoretically pays to its equity investors to compensate them for the risk they undertake by investing in the stock.

WACC

Weighted Average Cost of Capital. It represents the average rate that a company is expected to pay to finance its assets, weighted according to the proportion of equity and debt in its capital structure.

Free Cash Flow

The amount of cash generated by a business that is available for distribution among all the securities holders of an organization, including dividends, share repurchases, and debt repayments.

Cost of Equity

The return that investors require for investing in a company's equity, often estimated using models such as the Capital Asset Pricing Model (CAPM).