Which of the Following Statements Is False

question 32

Multiple Choice

Which of the following statements is false?

• A) The plot of the relationship between the investment risk and the interest rate is call the yield curve.
• B) Each of the previous recessions in Canada was preceded by a period with an inverted yield curve.
• C) The nominal interest rate does not represent the increase in purchasing power that will result from investing.
• D) A risk-free cash flow received in two years should be discounted at the two-year interest rate.

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Definitions:

Bond Discount

The gap between the nominal value of a bond and the price it fetches on the market when it is sold for an amount lower than its nominal value.

Straight-Line Amortization

A method of systematically reducing the cost value of an intangible asset over its useful life by charging equal expense amounts to each accounting period.

Effective-Interest Method

A method of calculating the interest expense on a bond or loan by applying the constant interest rate to the outstanding balance of the debt for each period.

Bond Discount

The discrepancy between a bond's nominal value and its market price when it is traded at a price below its nominal value.