Xavier Bought a Certificate of Deposit Whose Interest Rate Changes

question 48

Multiple Choice

Xavier bought a certificate of deposit whose interest rate changes with the stock market.In fact,he might even earn 0% interest on his investment for a time.He purchased a

• A) Bump-up CD.
• B) Callable CD.
• C) Portfolio CD.
• D) Promotional CD.
• E) Stock-indexed CD.

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Definitions:

Net Present Value

The difference between the present value of cash inflows and outflows over a period of time, used to assess the profitability of investments.

Discount Factor(s)

A multiplicative factor used to calculate the present value of future cash flows by accounting for the time value of money.

Discount Rate

The interest rate used in discounted cash flow analysis to calculate the present value of future cash flows.

Net Present Value

The variance between cash inflows' and outflows' current values during a certain period.