A Treasury bond promises to 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 periodic interest rate is greater than 3%.

b. The periodic rate is less than 3%.

c. The present value would be greater if the lump sum were discounted back for more periods.

d. The present value of the $1,000 would be smaller if interest were compounded monthly rather than semiannually.

e. The PV of the $1,000 lump sum has a higher present value than the PV of a 3-year, $333.33 ordinary annuity.

a. The periodic interest rate is greater than 3%.

b. The periodic rate is less than 3%.

c. The present value would be greater if the lump sum were discounted back for more periods.

d. The present value of the $1,000 would be smaller if interest were compounded monthly rather than semiannually.

e. The PV of the $1,000 lump sum has a higher present value than the PV of a 3-year, $333.33 ordinary annuity.

## This question was asked on Apr 10, 2011.

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