Which of the Following Statements Is Correct

question 122

Multiple Choice

Which of the following statements is correct?

• A) If a bank uses quarterly compounding for saving accounts,the simple rate will be greater than the effective annual rate.
• B) The present value of a future sum increases as the simple interest rate increases or the number of discount periods per year decreases.
• C) The present value of a future sum increases as either the simple interest rate or the number of discount periods per year increases.
• D) The present value of a future sum decreases as either the simple interest rate or the number of discount periods per year increases.
• E) All of the above statements are false.

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Definitions:

Forward Market

A marketplace for financial contracts that are agreed upon now but settled at a future date.

Premium

An amount paid in addition to a standard price, or the amount above the nominal or face value of a financial instrument.

Discount

A reduction in the price of goods, services, or financial instruments, often used as a marketing strategy or to encourage early payment.

International Fisher Effect

A theory stating that differences in nominal interest rates between two countries are directly proportional to changes in the exchange rate over the same period.