dla for the prsent value of an ann uity with a first payment oat occurs at the o
ID: 1175268 • Letter: D
Question
dla for the prsent value of an ann uity with a first payment oat occurs at the ould A) As bond ratings go from Ato AA to AAA, the return that investors require goes up. B) Ceteris paribus, the greater the number of periods, the lower the present value. C) Ceteris paribus, earning g mpound interest will always result in a higher balance than 24) Which of the following statementis TRUE interest even in the first period of interest earnings. D) The reward for g consumption descrlbes the interest rate from the point of 8-3 /222018, 9:31 AM 2Z/201 9:32 AMExplanation / Answer
Answer is Option B.
Based on statement b, PV = FV/(1 + r)n. This means the PV is inversely proportional to 'n' or number of periods.
Statement a is incorrect. As the rating for a bond improves (from A to AA and to AAA), the credit risk associated with bond decreases. This implies lower risk which would mean lower required return.
Statement c is incorrect. Compoundind interest = Simple interest in first period of earnings. Thereafter, compound interest increases, as the person will earn interest over interest.
Statement d is not fully visble.
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