Hugh Wallace Has the Following Information Regarding Three Investment Options

question 65

Multiple Choice

Hugh Wallace has the following information regarding three investment options.Each investment option involves the same one-year period. What nominal rate of return will Hugh earn if he invested in option 1?

• A) 0.79%
• B) 3.22%
• C) 0.32%
• D) 6.67%

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Definitions:

Callable Bond

A type of bond that the issuer has the right to repay before its maturity date, at a predetermined call price.

Sinking Fund

A reserve fund established by a company to repay debt or replace a major asset in the future.

Income Bond

A type of bond that only pays interest if the issuing corporation has earned enough income to cover the interest payments, often used by companies in financial distress.

Registered Form

Registrar of company records ownership of each bond; payment is made directly to the owner of record.