Problem Set #2 - Problem Set#2 TVM and Bond Pricing 1 Which...

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Problem Set #2: TVM and Bond Pricing 1. Which one of the following is the correct formula for the future value of $500 invested today at 7 percent interest for 8 years? A. FV = $500/[(1 + 0.08) × 7] B. FV = $500/[(1 + 0.07) × 8] C. FV = $500/(0.07 × 8) D. FV = $500 (1 + 0.07) 8 E. FV = $500 (1 + 0.08) 7 2. Terry invested $2,000 today in an investment that pays 6.5 percent annual interest. Which one of the following statements is correct, assuming all interest is reinvested? A. Terry will earn the same amount of interest each year. B. Terry could have the same future value and invest less than $2,000 initially if he could earn more than 6.5 percent interest. C. Terry will earn an increasing amount of interest each and every year even if he should decide to withdraw the interest annually rather than reinvesting the interest. D. Terry's interest for year two will be equal to $2,000 × 0.065 × 2. E. Terry will be earning simple interest.
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This note was uploaded on 01/17/2012 for the course FINC 311 taught by Professor Murphy during the Winter '08 term at University of Delaware.

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Problem Set #2 - Problem Set#2 TVM and Bond Pricing 1 Which...

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