Which of the Following Statements Is FALSE About Interest Rates

question 99

Multiple Choice

Which of the following statements is FALSE about interest rates?

• A) As interest rates may be quoted for different time intervals, it is often necessary to adjust the interest rate to a time period that matches that of cash flows.
• B) The effective annual rate indicates the amount of interest that will be earned at the end of one year.
• C) The annual percentage rate indicates the amount of simple interest earned in one year.
• D) The annual percentage rate indicates the amount of interest including the effect of compounding.

---

Definitions:

Hedge Ratio

The ratio of the size of a position in a hedging instrument to the size of the position being hedged, used to minimize risk.

Dollar Exposure

The extent to which a company or investor is affected by changes in the value of the U.S. dollar against foreign currencies.

Call Delta

An option's sensitivity measure that indicates how much the price of the call option is expected to change in response to a one-point change in the price of the underlying asset.

Two-State

Usually references a model involving two possible outcomes or states, often used in finance to model investment under uncertainty.