You Are Offered an Investment Opportunity

question 40

Multiple Choice

You are offered an investment opportunity. Its outcomes and probabilities are presented in the following table: Which of the following statements is true?

• A) This distribution is skewed to the right.
• B) This is a binomial distribution.
• C) This distribution is symmetric.
• D) This distribution is skewed to the left.
• E) This is a Poisson distribution.

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Definitions:

Effective-interest Method

A technique used in finance to calculate the actual interest rate on a bond or loan, taking into account the effect of compounding over the period.

Interest Expense

The cost incurred by an entity for borrowed funds; it is a non-operating expense shown on the income statement.

Straight-line Amortization

A method of reducing the carrying amount of an intangible asset over a fixed period of time in a systematic and rational manner.

Premium Amortization

The gradual expense or reduction of the premium paid above the par value of a debt security over its remaining term.