Assess the following statements: Simple interest calculations assume the interest earned is never reinvested. The real interest rate is the increment to purchasing power that the lender earns in order to induce him or her to forego current consumption. Earning a 5% interest rate with annual compounding is better than earning a 4.95% interest rate with semiannual compounding. For any positive interest rate the present value of a given annuity will be less than the sum of the cash flows and the future value of the same annuity will be greater than the sum of the cash flows. a. Three statements are incorrect. b. Two statements are incorrect. c. Only one statement is incorrect. d. All statements are correct.
Assess the following statements: Simple interest calculations assume the interest earned is never reinvested. The real interest rate is the increment to purchasing power that the lender earns in order to induce him or her to forego current consumption. Earning a 5% interest rate with annual compounding is better than earning a 4.95% interest rate with semiannual compounding. For any positive interest rate the present value of a given annuity will be less than the sum of the cash flows and the future value of the same annuity will be greater than the sum of the cash flows. a. Three statements are incorrect. b. Two statements are incorrect. c. Only one statement is incorrect. d. All statements are correct.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Assess the following statements:
- Simple interest calculations assume the interest earned is never reinvested.
- The real interest rate is the increment to
purchasing power that the lender earns in order to induce him or her to forego current consumption. - Earning a 5% interest rate with annual compounding is better than earning a 4.95% interest rate with semiannual compounding.
- For any positive interest rate the present value of a given
annuity will be less than the sum of the cash flows and thefuture value of the same annuity will be greater than the sum of the cash flows.
a. Three statements are incorrect.
b. Two statements are incorrect.
c. Only one statement is incorrect.
d. All statements are correct.
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