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:

Wage Rate

The fixed regular payment, typically calculated on an hourly, daily, or piecework basis, made by an employer to an employee.

Productive

The ability to produce a significant amount of output or work in a specific period of time, often using resources efficiently.

MRP Curve

The Marginal Revenue Product curve, which shows the added revenue generated by increasing the employment of an additional unit of a resource, holding other factors constant.

Labor Demand Curve

Represents the relationship between the quantity of labor that employers are willing to hire and the wage rate, typically sloping downward from left to right.