Ques. 27) Your bank account pays a 6% nominal rate of interest. The interest is
ID: 2942495 • Letter: Q
Question
Ques. 27) Your bank account pays a 6% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT?a. The periodic rate of interest is 1.5% and the effective rate of interest is 3%.
b. The periodic rate of interest is 6% and the effective rate of interest is greater than 6%.
c. The periodic rate of interest is 1.5% and the effective rate of interest is greater than 6%.
d. The periodic rate of interest is 3% and the effective rate of interest is 6%.
e. The periodic rate of interest is 6% and the effective rate of interest is also 6%.
Ques. 28) Suppose an ExxonMobil Corporation bond will pay $4,500 ten years from now. If the going interest rate on safe 10-year bonds is 4.25%, how much is the bond worth today?
a. $2,819.52
b. $2,967.92
c. $3,116.31
d. $3,272.13
e. $3,435.74
Explanation / Answer
27) periodic rate of interest = 6%/4 = 1.5%
effective rate of interest = (1+0.015)4 - 1 = 6.14%
answer is c)
28)
discounted present value = future value / (1+i)n
= 4500 / (1+0.0425)10 = 2967.92
answer is b)