A Consol Paying $20 Annually When the Interest Rate Is

question 55

Multiple Choice

A consol paying $20 annually when the interest rate is 5 percent has a price of

• A)$100.
• B)$200.
• C)$400.
• D)$800.

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Definitions:

Interest Rate

The percentage of an amount of money charged by a lender to a borrower for the use of assets.

Effective Interest Rate

A measure of the real cost of borrowing that takes into account the effect of compounding interest in addition to the nominal rate.

Compensating Balance

Compensating Balance is a minimum bank account balance that a borrower must maintain as part of a loan agreement, often used by banks as a requirement for extending a loan.

Interest Rate

The percentage of principal charged by the lender for the use of its money or the return earned on deposited funds.