A US Treasury Bond Will Pay a Lump Sum of $1,000

question 2

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 smaller 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 larger if interest were compounded monthly rather than semiannually.

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Definitions:

Dividends

Payments made by a corporation to its shareholder members, often derived from the company's profits.

Shares

Shares represent units of ownership interest in a company or financial asset that provide an equal distribution in any profits, if any are declared, in the form of dividends.

Quarterly Dividend

A payment made by a corporation to its shareholders, typically every three months, as a distribution of profits.

Shares

Units of ownership interest in a corporation or financial asset, representing a portion of a company's equity capital.