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:

Denial

A psychological defense mechanism where a person refuses to accept reality or facts.

Clichés

Phrases, expressions, or ideas that have been overused to the point of losing their original meaning or effect, often considered trite or predictable.

Immature Defense Mechanisms

Psychological strategies used unconsciously to protect oneself from anxiety and the perception of social or personal inadequacies.

Critical Thinking

The skill of logically breaking down ideas, identifying fallacies, and understanding arguments.