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Question
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?a. The PV of the $1,000 lump sum has a smaller present value than the PV of a 3-year, $333.33 ordinary annuity.
b. The periodic interest rate is greater than 3%.
c. The periodic rate is less than 3%.
d. The present value would be greater if the lump sum were discounted back for more periods.
e. The present value of the $1,000 would be larger if interest were compounded monthly rather than semiannually.
Answer
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