Which of the Following Statements Is Correct, Assuming Positive Interest

question 80

Multiple Choice

Which of the following statements is correct, assuming positive interest rates and holding other things constant?

• A) Banks A and B offer the same annual rate of interest, but A pays interest quarterly and B pays semiannually. A deposit in Bank B will have a higher value in five years.
• B) Banks A and B offer the same nominal annual rate of interest, but A pays interest quarterly and B pays monthly. A deposit in Bank B will have a higher value in five years.
• C) Banks A and B offer the same nominal annual rate of interest, but A pays interest daily and B pays semiannually. A deposit in Bank B will have a higher value in five years.
• D) Banks A and B offer the same nominal annual rate of interest, but A pays interest weekly and B pays quarterly. A deposit in Bank B will have a higher value in five years.

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Definitions:

Current Monetary Assets

Assets held by a company that are in the form of cash or can be easily converted into cash within a short period, typically one year.

Total Liabilities and Equity

The sum of all liabilities (what a company owes) plus the owners' equity (the original investment plus any retained earnings).

Exchange Rates

The rate at which one currency can be exchanged for another, affecting international trade and investments.

Exchange Gain/Loss

Exchange gain or loss results from foreign currency transactions due to changes in exchange rates between the initial transaction and settlement dates or reporting dates.