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.