How Much Should a Monthly Compounded Account with an EAR

question 29

Multiple Choice

How much should a monthly compounded account with an EAR of 10% earn semi-annually?

• A)4.88%
• B)5.00%
• C)4.76%
• D)5.11%

---

Definitions:

Convertible Bond

A fixed-income debt security that the holder can convert into a specified number of shares of common stock in the issuing company.

Conversion Price

The dollar amount of a bond’s par value that is exchangeable for one share of stock.

Conversion Value

The value of a convertible security if it were converted into a different asset, typically shares of the issuing company's stock.

Risk-Free Rate

The theoretical rate of return of an investment with zero risk, typically represented by the yield on government securities.