When there are material differences between the results of using the straight-line method and using the effecte interest rate method of amortization, the effective interest rate method should be used. True False
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- which one is correct please suggest? QUESTION 34 The effective rate of interest will always be ____ the nominal rate. a. greater than b. less than c. equal to d. equal to or greater thanGoodyear, a U.S. firm, sells tires to Airbus UK, and will receive payment of £1,000,000 in one year. Goodyear's bank quotes the information below: o The spot exchange rate is o The 1-year interest rate on dollars is ius = 2.00% e$/£ $1.50/£ %3D o The 1-year interest rate on pounds is iUK = 5.50% o The 1-year forward rate on pounds is fs/£ = $1.45/£ %3D In addition, Goodyear contacts private forecasters in the market and concludes: o The 1-year-ahead expected exchange rate on the Pound is eex £ = $1.40/£K possible Risk-Free Rate. What is a risk-free rate? Give an example of an investment with a risk free rate. Why is there no risk? A risk-free rate is: (Select the best answer below.) OA. an interest rate that is not guaranteed on an investment for a specified period. OB. an interest rate guaranteed on an investment for a unspecified period. OC. an interest rate guaranteed on an investment for a specified period. OD. an interest rate that is not guaranteed on an investment for an unspecified period. There is no risk because a risk-free investment: (Select the best answer below.) OA. pays an interest rate guaranteed on an investment for an unspecified period. OB. would pay investors even if the financial institution went into bankruptcy. OC. is a checking account. OD. is a zero interest loan.
- Question 28 The type of the risk that can be eliminated by diversification is called (A) default risk. (B) interest rate risk. c) market risk. D unique risk.Chapter 10 Homework Questions 1. Explain why money has a time value. 2. What is the difference between simple interest and compound interest? 3. Explain the Rule of 72. 4. What is the meaning of present value (PV)? 5. What do we mean by internal rate of return (IRR)Q. What is realized real interest rates? Give example.
- culuction intrest rates . solve for the unknown interest rate in each of the following?21 Which one of the following best describes the purpose of derivatives markets? Multiple Choice O Earning interest income Investing for a short time period to earn a small rate of return. Transferring risk from one party to another. Investing for retirementQuestion 17 Amacrohedge is a O hedge of a partleular assèt or lisbillty D hedge of an entire balante sheet, O heddge using optlons O hedge without basis risk, O hedge using futures on macroeconomic variables.
- A. Assume that the variables I, N, and PV represent the interest rate, investment or deposit period, and present value of the amount deposited or invested, respectively. Which equation best represents the calculation of a future value (FV) using: Compound interest? FV = (1 + I)NN / PV FV = PV / (1 + I)NN FV = PV x (1 + I)NN B. Simple interest? FV = PV + (PV x I x N) FV = PV - (PV x I x N) FV = PV / (PV x I x N) C. Identify whether the following statements about the simple and compound interest methods are true or false. Statement True False After the end of the second year and all other factors remaining equal, a future value based on compound interest will never exceed the future value based on simple interest. All other variables held constant, investments paying simple interest have to pay significantly higher interest rates to earn the same amount of interest as an account earning compound…Macaulay duration is the optimal holding period to immunize the interest rate risks, namely to make the reinvestment risk and selling price risk offset one another completely. O True O FalseQUESTION 11 The discounting of the future is assumed to be exponential. What does behavioral finance have to say about this assumption? What is hyperbolic discounting? Explain