Consider the Following Investment Alternatives: Which Alternative Offers You

question 22

Multiple Choice

Consider the following investment alternatives: Which alternative offers you the highest effective rate of return?

• A)Investment A
• B)Investment B
• C)Investment C
• D)Investment D

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Definitions:

Market Rate

The prevailing interest rate available in the marketplace for instruments of similar risk and maturity.

Contract Rate

The predetermined fee or rate agreed upon in a contract for services rendered or goods sold.

Bonds

Long-term debt securities issued by corporations or governments to raise capital, paying interest to holders.

Premium

A term that records the sale of stock at more than par value. In this book we use the account Paid-In Capital in Excess of Par to record the premium received.