Question

24: Investment A and B both pay interest of 3% per year. Investment A interest compounds quarterly, Investment B interest compounds semi-annually. You plan to invest for 3 years, which is the better investment? A OR B OR A=B

27: When yields rise, bond and stock values must fall. TRUE OR False

29: Bond A is a BBB bond, Bond B is a AAA bond. All else equal, which one will have a lower yield to maturity? A OR B, A=B

30: Diversification can eliminate unsystematic risk. TRUE OR FALSE

31: An annuity due will always have a higher present value and a higher future value than an ordinary annuity, all else equal. TRUE OR FALSE

32:You have calculated the value of an investment to be $100. If it costs $105, you should buy it. TRUE OR FALSE

Answer 1

Answer 24

Investment A is a better investment as it will compound 4 times a year as compared to Investment B which compounds 2 times. Higher the number of compounding , higher the value.

Answer 27

True , Bond & Stock value falls when yield rises as there is negative relationship between both.

Answer 29

Bond B will have lower yield to maturity as it is a AAA bond and High Rating Bond has low yield to maturity.

Answer 30

True , Diversification reduce unsystematic risk

Answer 31

True , Anniuty due has a high present and future value as compared to ordinary annuity

Answer 32

False , we will not buy the investment as it is overpriced