Question

14. Which of the following statements is true? a. If you earn simple interest then you...

14. Which of the following statements is true?

a. If you earn simple interest then you earn interest on the original amount of principal and interest received

b. The present value of an annuity represents an infinite series of equal payments

c. If you earn compound interest then you earn interest on the original amount of principal and interest received

d. The present value of a perpetuity represents a finite series of equal payments

19. A bond has a market price that exceeds its face value. Which one of these features currently applies to this bond?

a. Discount bond

b. Yield to maturity is greater than coupon rate.

c. Yield to maturity is lower than the coupon rate

d. Yield to maturity is equal to the coupon rate.

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Answer #1

14.

c. If you earn compound interest then you earn interest on the original amount of principal and interest received (Answer)

because compounding means extra interest earned on the interest received as it assumed interest is reinvested

a is false because simple interest is only on principal, b is wrong as infiite series is for perpetuity, d is false because finite series represents annuity

19.

c. Yield to maturity is lower than the coupon rate

because it is a premium bond which should have YTM less than coupon rate

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