Which of the Following Statements Is NOT Correct

question 21

Multiple Choice

Which of the following statements is NOT correct?

• A)The present value of a 3-year, $150 annuity due will exceed the present value of a 3-year, $150 ordinary annuity.
• B)If a loan has a nominal annual rate of 8%, then the effective rate can never be less than 8%.
• C)If a loan or investment has annual payments, then the effective, periodic, and nominal rates of interest will all be the same.
• D)An investment that has a nominal rate of 6% with semiannual payments will have an effective rate that is less than 6%.

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Definitions:

Market Risk Premium

The additional return investors expect for holding a risky market portfolio instead of risk-free assets.

Risk-Free Rate

The hypothetical return on a risk-free investment, typically illustrated by the interest earned on government securities.

Beta

A measure of a stock's volatility in relation to the overall market; a beta above 1 indicates the stock is more volatile than the market.

Expected Return

The average of all possible returns from an investment, weighted by their probabilities.