Use the Following Information for Questions

question 39

Multiple Choice

Use the following information for questions
A bank has a planned 2-year investment horizon. It is considering investing $1,000 in a 2-year bond that pays 6% annually versus investing in a 4-year bond that pays 6.5% annually and then selling it after two years. The annual coupon payments can be reinvested at 4%.
-What will be the realized compound yield if the bank invests in the 4-year security and sells it at the end of two years, assuming interest rates remain unchanged? The price at sale after two years will be $1,009.17.

• A) 4.00%
• B) 5.48%
• C) 5.94%
• D) 6.01%
• E) 6.85%

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Definitions:

Type I Error

The statistical error that occurs when a true null hypothesis is incorrectly rejected.

Null Hypothesis

A statistical hypothesis that assumes no significant difference or effect in a given situation, used as a basis for testing.

Life Insurance

A contract between an insurer and a policyholder in which the insurer guarantees payment of a death benefit to named beneficiaries upon the death of the insured.

Professional Men

Individuals who are males working within their expertise or occupation, often requiring specialized education and training.