Question

Which of the following statements is correct?

(I) The annual percentage rate indicates the amount of compound interest earned in one year

(II) The effective annual rate indicates the amount of simple interest earned in one year

(III) High inflation rates are associated with low nominal interest rates

Select one:

a. I and II only

b. II and III only

c. I and III only

d. I, II and III

e. None of the above

Answer #1

Well,

The answer is( e) - none of the above

This is because,

1. APR does not indicates anything about the compounding interest however it includes fees or additional cost connected with transactions.

2.Effective annual rates indicates compounding interest over a period of time not simple interest.

3. A nominal interest rate means an interest rate without taking inflation into account.

Therefore, above three statements are not correct so none of these is the answer.

Which of the following statements are most likely to be
false?
The effective annual interest rate will always be greater than
the quoted (or annual percentage) interest rate.
All else being the same, the present value of an ordinary
annuity will be larger than the present value of an annuity
due.
If you were borrowing funds from a bank, and the quoted
interest rate was 8% p.a., you would be better off if the bank used
quarterly compounding rather than...

10. Which one of the following statements related to loan
interest rates is correct?
The annual percentage rate considers the compounding of
interest.
When comparing loans with different compounding periods you
should compare the effective annual rates.
Lenders are more likely to quote the effective annual rate.
The more frequent the compounding period, the lower the
effective annual rate given a fixed annual percentage rate.
3 points

Which one of the following statements is correct?
The risk-free rate is zero if inflation is equal to the nominal
rate
Any return greater than the inflation rate represents the risk
premium.
Inflation rates are always positive.
Nominal rates exceed real rates by the amount of the risk-free
rate.
The real rate is negative if inflation exceeds the nominal
rate

Which of the following are correct?
I. If expected inflation increases, investors will consider selling
bonds as the real value of this investment will decrease and bond
yields should increase.
II. Reinvestment risk occurs when interest rates decrease so that
coupons from a bond are reinvested at a lower rate than originally
expected.
III. If interest rates are expected to increase, an investor should
consider selling long-maturity bonds and buying short-maturity
bonds to decrease portfolio duration.
IV. If the risk...

Which of the following statements regarding investment is (are)
correct? I. When the interest rate falls, residential investment
increases because demand for houses falls. II. When the interest
rate falls, inventory investment increases because the opportunity
cost of holding inventory decreases.
a) None of the above. b) I only. c) II only. d) I and II.

Which of the following statements is correct:
I. Managed float regime allows the currency to appreciate
gradually over time within a limited range;
II. Free float can be characterised by supply and demand forces
determining the exchange rate with possible interference from
government;
III. According to linked exchange rate regime, one currency is
directly linked to another one;
IV. The BIS is responsible for establishing exchange rate
regimes in all participating countries;
V. Crawling peg regime allows the currency move...

Which of the following statements about annual percentage rate
(APR) and effective annual rate (EAR) are not true?
1-The annual percentage rate (APR) is considered a more accurate
measurement of what you will actually pay.
2-Lenders are legally required to show potential borrowers the
effective annual rate (EAR) on any loan offered.
3-The difference between APR and EAR is not that large.
4-None of the above are untrue statements.

Which of the following statements is CORRECT?
a.
The proportion of the payment that goes toward interest on a
fully amortized loan increases over time.
b.
If a loan has a nominal annual rate of 8%, then the effective
rate can never be greater than 8%.
c.
The present value of a 3-year, $150 annuity due will exceed the
present value of a 3-year, $150 ordinary annuity.
d.
If a loan or investment has annual payments, then the effective,
periodic,...

Which one of the following statements about inflation is
correct?
A.
The real rate of return accurately indicates how an investment
opportunity will change the investor's purchasing power.
B.
The greater the inflation rate is, the stronger the purchasing
power of a currency becomes.
C.
Deflation is highly desired because it immediately stimulates
consumption in an economy.
D.
When the expected inflation increases, the nominal interest
rates decline.
Which of the following statements about capital budgeting tools
are correct?
I....

Which of the following statements is CORRECT?
a. The present value of a 3-year,
$150 annuity due will exceed the present value of a 3-year, $150
ordinary annuity.
b. An investment that has a nominal
rate of 6% with semiannual payments will have an effective rate
that is smaller than 6%.
c. If a loan has a nominal annual
rate of 8%, then the effective rate can never be greater than
8%.
d. The proportion of the payment
that goes...

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