FIN 534 RANK Imagine Your Future /fin534rank.com FIN 534 RANK Imagine Your Future /fin534rank.com | Page 77

12. Which of the following bank accounts has the highest effective
annual return?
1) An account that pays 8% nominal interest with monthly
compounding
2) An account that pays 8% nominal interest with annual
compounding.
3) An account that pays 7% nominal interest with daily (365-day)
compounding
4) An account that pays 7% nominal interest with monthly
compounding
5) An account that pays 8% nominal interest with daily (365-day)
compounding
13. A U.S. Treasury bond will pay a lump sum of $1,000 exactly 3
years from today. The nominal interest rate is 6%, semiannual
compounding. Which of the following statements is CORRECT?
1) The periodic interest rate is greater than 3%.
2) The periodic rate is less than 3%.
3)
The present value would be greater if the lump sum were
discounted back for more periods.
4)
The present value of the $1,000 would be smaller if interest were
compounded monthly rather than semiannually.
5)
The PV of the $1,000 lump sum has a higher present value than
the PV of a 3-year, $333.33 ordinary annuity.