ECO 248 Intro Financial Institutions and Markets Midterm
If a $5,000 coupon bond has a coupon rate of 13 percent, then the coupon payment every year is Select one: A. $650. B. $1,300. C. $130. D. $13. E. None of these.
A. $650.
With an interest rate of 5 percent, the present value of $100 received one year from now is approximately Select one: A. $95. B. $105. C. $90. D. $100.
A. $95.
Which of the following money market instruments has the lowest rate? Select one: A. 4-week Treasury bills B. 1-month CDs C. The prime rate D. Eurodollars
A. 4-week Treasury bills
A clause in a mortgage loan contract requiring the borrower to purchase homeowner's insurance is an example of Select one: A. a restrictive covenant. B. a collusive agreement between mortgage lenders and insurance companies. C. both a restrictive covenant and a collusive agreement between mortgage lenders and insurance companies. D. neither a restrictive covenant nor a collusive agreement between mortgage lenders and insurance companies.
A. a restrictive covenant.
The problem created by asymmetric information before the transaction occurs is called ________, while the problem created after the transaction occurs is called ________. Select one: A. adverse selection; moral hazard B. free-riding; costly state verification C. moral hazard; adverse selection D. costly state verification; free-riding
A. adverse selection; moral hazard
A bond's future payments are called its Select one: A. cash flows. B. discounted present values. C. maturity values. D. yields to maturity.
A. cash flows.
If a corporation's earnings rise, then the default risk on its bonds will ________ and the equilibrium interest rate on these bonds will ________. Select one: A. decrease; decrease B. increase; increase C. decrease; increase D. increase; decrease
A. decrease; decrease
Higher expected interest rates in the future ________ the demand for long-term bonds and shift the demand curve to the ________. Select one: A. decrease; left B. decrease; right C. increase; left D. increase; right
A. decrease; left
A decrease in marginal tax rates would likely have the effect of ________ the demand for municipal bonds and ________ the demand for U.S. government bonds. Select one: A. decreasing; increasing B. increasing; decreasing C. decreasing; decreasing D. increasing; increasing
A. decreasing; increasing
According to the January effect, stock prices Select one: A. experience an abnormal price rise from December to January. B. follow a random walk during January. C. experience an abnormal price decline from December to January. D. set the pattern for the entire year in January.
A. experience an abnormal price rise from December to January.
The ________ problem occurs when people who do not pay for information take advantage of the information that other people have paid for. Select one: A. free-rider B. adverse selection C. moral hazard D. lemons
A. free-rider
The higher the standard deviation of returns on an asset, the ________ the asset's ________. Select one: A. greater; risk B. greater; expected return C. smaller; risk D. smaller; expected return
A. greater; risk
Dollars received in the future are worth ________ than dollars received today. The process of calculating what dollars received in the future are worth today is called ________. Select one: A. less; discounting B. more; discounting C. more; inflating D. less; inflating
A. less; discounting
Of the following sources of external finance for American nonfinancial businesses, the most important is Select one: A. nonbank loans. B. stocks. C. loans from banks. D. bonds and commercial paper.
A. nonbank loans.
If the Federal Reserve wants to expand reserves in the banking system, it will Select one: A. purchase government securities. B. raise the discount rate. C. sell government securities. D. raise reserve requirements.
A. purchase government securities.
Regulations making it obligatory for depository institutions to keep a certain fraction of their deposits in accounts with the Fed are Select one: A. reserve requirements. B. federal funds rate. C. open market operations. D. required reserve ratio.
A. reserve requirements.
The spread between the interest rates on bonds with default risk and default-free bonds, both of the same maturity, is called the Select one: A. risk premium. B. market premium. C. rate premium. D. bond premium.
A. risk premium.
The demand for an asset rises if ________ falls. Select one: A. risk relative to other assets B. liquidity relative to other assets C. expected return relative to other assets D. wealth
A. risk relative to other assets
A ________ prefers stock in a less risky asset than in a riskier asset. Select one: A. risk-averse person B.risk preferrer C. risk lover D. risk-favorable person
A. risk-averse person
To say that stock prices follow a "random walk" is to argue that Select one: A. stock prices are, for all practical purposes, unpredictable. B. stock prices rise, then fall in a predictable fashion. C. stock prices tend to follow trends. D. stock prices rise, then fall.
A. stock prices are, for all practical purposes, unpredictable.
Of the following sources of external finance for American nonfinancial businesses, the least important is Select one: A. stocks. B. bonds and commercial paper. C. loans from banks. D. nonbank loans.
A. stocks.
When an accounting firm conducts on independent audit, the accounting firms certify that Select one: A. the firm is adhering to standard accounting principles and disclosing accurate information about sales, assets, and earnings. B. the firm is adhering to federal regulations with regard to product safety, hiring practices, and environmental regulations. C. the firm's management is qualified to conduct the firm's business in the best interest of share holders. D. All of these are correct answers.
A. the firm is adhering to standard accounting principles and disclosing accurate information about sales, assets, and earnings.
Studies of mutual fund performance indicate that mutual funds that outperformed the market in one time period Select one: A. usually do not beat the market in the next time period. B. usually beat the market in the next two subsequent time periods. C. usually beat the market in the next time period. D. usually beat the market in the next three subsequent time periods.
A. usually do not beat the market in the next time period.
A $10,000, 8 percent coupon bond that sells for $10,000 has a yield to maturity of Select one: A. 14 percent. B. 8 percent. C. 10 percent. D. 12 percent.
B. 8 percent.
Which of the following $1,000 face value securities has the highest yield to maturity? Select one: A. A 10 percent coupon bond selling for $1,000 B. A 15 percent coupon bond selling for $900 C. A 5 percent coupon bond selling for $1,000 D. A 15 percent coupon bond selling for $1,000
B. A 15 percent coupon bond selling for $900
The duration of a ten-year, 10 percent coupon bond when the interest rate is 10 percent is 6.76 years. What happens to the price of the bond if the interest rate falls to 8 percent? Select one: A. It rises 20 percent. B. It rises 12.3 percent. C. It falls 12.3 percent. D. It falls 20 percent.
B. It rises 12.3 percent.
In the United States, the government agency requiring that firms, which sell securities in public markets, adhere to standard accounting principles and disclose information about their sales, assets, and earnings is the Select one: A. Federal Reserve System. B. Securities and Exchange Commission. C. U.S. Treasury Department. D. Federal Corporate Securities Commission. E. Federal Trade Commission.
B. Securities and Exchange Commission
In which of the following situations would you prefer to be borrowing? Select one: A. The interest rate is 13 percent and the expected inflation rate is 15 percent. B. The interest rate is 25 percent and the expected inflation rate is 50 percent. C. The interest rate is 9 percent and the expected inflation rate is 7 percent. D. The interest rate is 4 percent and the expected inflation rate is 1 percent.
B. The interest rate is 25 percent and the expected inflation rate is 50 percent.
A coupon bond pays the owner of the bond Select one: A. the same amount every month until the maturity date. B. a fixed interest payment every period, plus the face value of the bond at the maturity date. C. the face value of the bond plus an interest payment once the maturity date has been reached. D. the face value at the maturity date. E. None of these.
B. a fixed interest payment every period, plus the face value of the bond at the maturity date.
When the Federal Reserve was created, its most important role was intended to be Select one: A. a storage facility for the nation's gold. B. a lender of last resort. C. a regulator of bank holding companies. D. None of these.
B. a lender of last resort.
A borrower who takes out a loan usually has better information about the potential returns and risks of the investment projects he plans to undertake than the lender does. This inequality of information is called Select one: A. adverse selection. B. asymmetric information. C. noncollateralized risk. D. moral hazard.
B. asymmetric information.
When the price of a bond is ________ the equilibrium price, there is an excess demand for bonds and the price will ________. Select one: A. above; fall B. below; rise C. below; fall D. above; rise
B. below; rise
Adverse selection Select one: A. is a problem created by asymmetrical information after the transaction. B. can be solved by eliminating asymmetrical information. C. occurs when people who do not pay for information take advantage of the information other people have to pay for. D. All of these.
B. can be solved by eliminating asymmetrical information.
A debt contract that specifies that the company can only use the funds to finance certain activities Select one: A. is a private loan. B. contains a restrictive covenant. C. increases the problem of adverse selection. D. All of these. E. only is a private loan and contains a restrictive covenant.
B. contains a restrictive covenant.
The nominal interest rate minus the expected rate of inflation Select one: A. defines the discount rate. B. defines the real interest rate. C. is a less accurate indicator of the tightness of credit market conditions than is the nominal interest rate. D. is a less accurate measure of the incentives to borrow and lend than is the nominal interest rate.
B. defines the real interest rate
The process of calculating what dollars received in the future are worth today is called Select one: A. compounding the present. B. discounting the future. C. compounding the future. D. calculating the yield to maturity.
B. discounting the future.
A loan that requires the borrower to make the same payment every period until the maturity date is called a Select one: A. simple loan. B. fixed-payment loan. C. discount loan. D. same-payment loan. E. None of these.
B. fixed-payment loan.
The small-firm effect refers to the observation that small firms' stocks Select one: A. have earned abnormally low returns given their greater risk. B. have earned abnormally high returns even taking into account their greater risk. C. sell for lower prices than do large firms' stocks. D. follow a random walk but large firms' stocks do not.
B. have earned abnormally high returns even taking into account their greater risk.
A bond rating of Aa or AA would mean that the quality of the bond is Select one: A. medium grade. B. high. C. the highest. D. speculative.
B. high.
A discount loan by the Fed to a bank causes a ________ in reserves in the banking system and a ________ in the monetary base. Select one: A. increase; decrease B. increase; increase C. decrease; increase D. decrease; decrease
B. increase; increase
During an economic expansion, the supply of bonds ________ and the supply curve shifts to the ________. Select one: A. increases; left B. increases; right C. decreases; left D. decreases; right
B. increases; right
The riskiness of an asset's return that results from interest rate changes is called Select one: A. yield-to-maturity risk. B. interest-rate risk. C. reinvestment risk. D. coupon-rate risk.
B. interest-rate risk.
Money market securities have all the following characteristics except they are not Select one: A. short term. B. money. C. very liquid. D. low risk.
B. money.
If borrowers take on big risks after obtaining a loan, then lenders face the problem of Select one: A. costly state verification. B. moral hazard. C. free-riding. D. adverse selection.
B. moral hazard.
An open market ________ leads to a ________ of reserves and deposits in the banking system and hence to a ________ of the monetary base and the money supply. Select one: A. sale; expansion; expansion B. purchase; expansion; expansion C. sale; expansion; contraction D. purchase; expansion; contraction
B. purchase; expansion; expansion
If the Federal Reserve wants to drain reserves from the banking system, it will Select one: A. purchase government securities. B. sell government securities. C. raise reserve requirements. D. lower the discount rate.
B. sell government securities.
If the Federal Reserve wants to lower the monetary base and the money supply, it will Select one: A. lower reserve requirements. B. sell government securities. C. lower the discount rate. D. increase bank reserves.
B. sell government securities.
An $8,000 coupon bond with a $400 annual coupon payment has a coupon rate of Select one: A. 8 percent. B. 40 percent. C. 5 percent. D. 10 percent.
C. 5 percent.
(I) A simple loan requires the borrower to repay the principal at the maturity date along with an interest payment.(II) A discount bond is bought at a price below its face value, and the face value is repaid at the maturity date. Select one: A. (I) is true, (II) false. B. (I) is false, (II) true. C. Both are true. D. Both are false.
C. Both are true.
Which of the following long-term bonds should have the lowest interest rate? Select one: A. Corporate Aaa bonds B. Corporate Baa bonds C. Municipal bonds D. U.S. Treasury bonds
C. Municipal bonds
In which of the following situations would you prefer to be making a loan? Select one: A. The interest rate is 9 percent and the expected inflation rate is 7 percent. B. The interest rate is 13 percent and the expected inflation rate is 15 percent. C. The interest rate is 4 percent and the expected inflation rate is 1 percent. D. The interest rate is 25 percent and the expected inflation rate is 50 percent.
C. The interest rate is 4 percent and the expected inflation rate is 1 percent.
An audit certifies that Select one: A. a firm's loans will be repaid. B. a firm's securities are safe investments. C. a firm abides by standard accounting principles. D. the information reported in a firm's accounting statements is correct
C. a firm abides by standard accounting principles.
The efficient market hypothesis Select one: A. is based on the assumption that prices of securities fully reflect all available information. B. holds that the expected return on a security equals the equilibrium return. C. both is based on the assumption that prices of securities fully reflect all available information and holds that the expected return on a security equals the equilibrium return. D. neither is based on the assumption that prices of securities fully reflect all available information nor holds that the expected return on a security equals the equilibrium return.
C. both is based on the assumption that prices of securities fully reflect all available information and holds that the expected return on a security equals the equilibrium return.
Activity in money markets increased significantly in the late 1970s and early 1980s because of Select one: A. rising short-term interest rates. B. regulations that limited what banks could pay for deposits. C. both rising short-term interest rates and regulations that limited what banks could pay for deposits. D. neither rising short-term interest rates nor regulations that limited what banks could pay for deposits.
C. both rising short-term interest rates and regulations that limited what banks could pay for deposits.
Property that is pledged to the lender in the event that a borrower cannot make his or her debt payment is called Select one: A. points. B. interest. C. collateral. D. good faith money.
C. collateral.
The majority of household debt in the United States consists of Select one: A. credit card debt. B. unsecured loans, such as student loans. C. collateralized loans. D. consumer installment debt.
C. collateralized loans
If Moody's or Standard and Poor's downgrades its rating on a corporate bond, the demand for the bond ________ and its yield ________. Select one: A. decreases; decreases B. increases; increases C. decreases; increases D. increases; decreases
C. decreases; increases
The average lifetime of a debt security's stream of payments is calculated as the debt's Select one: A. convexity. B. maturity date. C. duration. D. effective maturity.
C. duration.
The real interest rate is actually the ex ante real interest rate because it is adjusted for ________ changes in the price level. Select one: A. real B. actual C. expected D. nominal
C. expected
Holding everything else constant, if a corporation begins to suffer large losses, then the default risk on its bonds will ________ and the expected return on those bonds will ________. Select one: A. decrease; increase B. increase; increase C. increase; decrease D. decrease; decrease
C. increase; decrease
Bonds with relatively low risk of default are called Select one: A. zero coupon bonds. B. junk bonds. C. investment-grade bonds. D. None of these.
C. investment-grade bonds.
The efficient market hypothesis suggests that allocating your funds in the financial markets on the advice of a financial analyst Select one: A. will certainly mean higher returns than if you had made selections by throwing darts at the financial page. B. will always mean lower returns than if you had made selections by throwing darts at the financial page. C. is not likely to prove superior to a strategy of making selections by throwing darts at the financial page. D. is good for the economy.
C. is not likely to prove superior to a strategy of making selections by throwing darts at the financial page.
A $10,000, 8 percent coupon bond that sells for $10,100 has a yield to maturity Select one: A. equal to 8 percent. B. greater than 8 percent. C. less than 8 percent. D. that cannot be calculated.
C. less than 8 percent
The concept of ________ is based on the notion that a dollar paid to you in the future is less valuable to you than a dollar today. Select one: A. future value B. interest C. present value D. deflation
C. present value
Moody's and Standard and Poor's are agencies that Select one: A. help investors collect when corporations default on their bonds. B. advise municipal bond issuers on the tax exempt status of their bonds. C. produce information about the probability of default on corporate bonds. D. maintain liquid markets for corporate bonds.
C. produce information about the probability of default on corporate bonds.
In the used car market, asymmetric information leads to the lemons problem because the price that buyers are willing to pay will Select one: A. reflect the highest quality of used cars in the market. B. reflect the lowest quality of used cars in the market. C. reflect the average quality of used cars in the market. D. None of these.
C. reflect the average quality of used cars in the market.
A financial institution can achieve cost savings in its credit card operations if it increases the number of cardholders. This is an example of economies of Select one: A. scope. B. complexity. C. scale. D. information.
C. scale.
The return on a bond is equal to the yield to maturity when Select one: A. the holding period is longer than the maturity of the bond. B. the maturity of the bond is longer than the holding period. C. the holding period and the maturity of the bond are identical. D. None of these.
C. the holding period and the maturity of the bond are identical.
The federal funds rate is Select one: A. the interest rate on loans from a bank to the federal government. B. the price banks pay the Fed for government securities. C. the interest rate on loans of reserves from one bank to another. D.the interest rate on loans from the Fed to a bank. E. the price the Fed pays for government securities.
C. the interest rate on loans of reserves from one bank to another.
The interest rate that equates the present value of the cash flow received from a debt instrument with its market price today is the Select one: A. discount rate. B. simple interest rate. C. yield to maturity. D. real interest rate.
C. yield to maturity.
Which of the following long-term bonds should have the highest interest rate? Select one: A. Corporate Aaa bonds B. U.S. Treasury bonds C. Municipal bonds D. Corporate Baa bonds
D. Corporate Baa bonds
With an interest rate of 8 percent, the present value of $100 received one year from now is approximately Select one: A. $100. B. $96. C. $108. D. $93.
D. $93.
If you expect the inflation rate to be 15 percent next year and a one-year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is Select one: A. 7 percent. B. 22 percent. C. -15 percent. D. -8 percent. E. None of these.
D. -8 percent.
The return on a 10 percent coupon bond that initially sells for $1,000 and sells for $900 one year later is Select one: A. 5 percent. B. -10 percent. C. -5 percent. D. 0 percent.
D. 0 percent.
The return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,100 one year later is Select one: A. 10 percent. B. 5 percent. C. 14 percent. D. 15 percent.
D. 15 percent.
What is the approximate duration of a 5-year zero-coupon bond? Select one: A. 3 years B. 2 years C. 4 years D. 5 years
D. 5 years
Which of the following $1,000 face value securities has the highest yield to maturity? Select one: A. A 5 percent coupon bond selling for $1,000 B. A 12 percent coupon bond selling for $1,100 C. A 10 percent coupon bond selling for $1,000 D. A 12 percent coupon bond selling for $1,000
D. A 12 percent coupon bond selling for $1,000
Which of the following are generally true of all bonds? Select one: A. The longer a bond's maturity, the lower is the rate of return that occurs as a result of the increase in the interest rate. B. Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise. C. Prices and returns for long-term bonds are more volatile than those for shorter-term bonds. D. All of these are true. E. Only The longer a bond's maturity, the lower is the rate of return that occurs as a result of the increase in the interest rate and Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise are true.
D. All of these are true.
Which of the following are true statements about participants in the money markets? Select one: A. Large banks participate in the money markets by selling large negotiable CDs. B. The U.S. government and corporations borrow in the money markets because cash inflows and outflows are rarely synchronized. C. The Federal Reserve is the single most influential participant in the U.S. money market. D. All of these are true. E. Only Large banks participate in the money markets by selling large negotiable CDs and The U.S. government and corporations borrow in the money markets because cash inflows and outflows are rarely synchronized are true
D. All of these are true.
Because of the adverse selection problem, Select one: A. lenders may make a disproportionate amount of loans to bad credit risks. B. lenders may refuse loans to individuals with low net worth. C. lenders are reluctant to make loans that are not secured by collateral. D. All of these.
D. All of these.
Collateral is Select one: A. property that is pledged to the lender if a borrower cannot make his or her debt payments. B. a prevalent feature of debt contracts for households. C. a prevalent feature of debt contracts for businesses. D. All of these. E. only property that is pledged to the lender if a borrower cannot make his or her debt payments and a prevalent feature of debt contracts for businesses.
D. All of these.
During the 2007-2009 financial crisis, what actions did the Fed take to limit the scope of the crisis? Select one: A. The Fed lowered the spread on the discount rate to 50 basis points, and then to 25. B. The Fed set up the Term Auction Facility to provide further liquidity to banks. C. The Fed purchased assets of Bear Stearns to facilitate the purchase of Bear Stearns by J.P. Morgan. D. All of these.
D. All of these.
Why do corporations and the U.S. government sometimes need to get their hands on funds quickly? Select one: A. Poor financial planning puts many corporations and government entities in situations where they cannot pay currency bills. B. Most of their funds are held in highly illiquid investment. C. The timing of many expenses is difficult to estimate. D. Cash inflows and outflows are rarely synchronized.
D. Cash inflows and outflows are rarely synchronized.
What is the primary role of individuals as participants in the money market? Select one: A. Individuals do not participate in the money market. B. Individuals often use money market instruments to finance home and auto purchases. C. Many individuals issue money market instruments to lend excess cash. D. Individuals purchase money market instruments via money market mutual funds.
D. Individuals purchase money market instruments via money market mutual funds.
Which of the following is not one of the eight basic facts about financial structure? Select one: A. Debt contracts are typically extremely complicated legal documents that place substantial restrictions on the behavior of the borrower. B. Indirect finance, which involves the activities of financial intermediaries, is many times more important than direct finance in which businesses raise funds directly from lenders in financial markets. C. Collateral is a prevalent feature of debt contracts for both households and businesses. D. New security issues is the most important source of external funds to finance businesses.
D. New security issues is the most important source of external funds to finance businesses.
An ex post real interest rate is adjusted for ________ changes in the price level. Select one: A. nominal B. expected C. real D. actual
D. actual
Money market instruments Select one: A. are usually sold in large denominations. B. have low default risk. C. mature in one year or less. D. are characterized by all of these. E. are characterized by only are usually sold in large denominations and have low default risk.
D. are characterized by all of these.
When the demand for bonds ________ or the supply of bonds ________, bond prices rise. Select one: A. decreases; decreases B. decreases; increases C. increases; increases D. increases; decreases
D. increases; decreases
Bonds with relatively high risk of default are called Select one: A. zero coupon bonds. B. Brady bonds. C. investment-grade bonds. D. junk bonds.
D. junk bonds.
Because of the lemons problem in the used car market, the average quality of the used cars offered for sale will be ________, which gives rise to the problem of ________. Select one: A. high; adverse selection B. high; moral hazard C. low; moral hazard D. low; adverse selection
D. low; adverse selection
The goal for high employment should be a level of unemployment at which the demand for labor equals the supply of labor. Economists call this level of unemployment the Select one: A. structural rate of unemployment. B. ideal rate of unemployment. C. frictional rate of unemployment. D. natural rate of unemployment.
D. natural rate of unemployment.
The Fed is reluctant to use reserve requirements to control the money supply because Select one: A. of their overly-powerful impact on the money supply. B. they have the potential to create liquidity problems for banks with low excess reserves. C. frequent changes in reserve requirements complicate liquidity management for banks. D. of All of these. E. of only of their overly-powerful impact on the money supply and they have the potential to create liquidity problems for banks with low excess reserves.
D. of All of these.
During business cycle expansions when income and wealth are rising, the demand for bonds ________ and the demand curve shifts to the ________. Select one: A. falls; left B. falls; right C. rises; left D. rises; right
D. rises; right
An open market purchase Select one: A. shifts the demand curve for reserves to the left and causes the federal funds rate to fall. B. shifts the supply curve for reserves to the left and causes the federal funds rate to rise. C. shifts the demand curve for reserves to the right and causes the federal funds rate to rise. D. shifts the supply curve for reserves to the right and causes the federal funds rate to fall.
D. shifts the supply curve for reserves to the right and causes the federal funds rate to fall.
The actual execution of open market operations is done at Select one: A. the Board of Governors in Washington, D.C. B. the Federal Reserve Bank of Boston. C. the Federal Reserve Bank of Philadelphia. D. the Federal Reserve Bank of New York.
D. the Federal Reserve Bank of New York.
Factors that determine the demand for an asset include changes in the Select one: A. wealth of investors. B. liquidity of bonds relative to alternative assets. C. expected returns on bonds relative to alternative assets. D. risk of bonds relative to alternative assets. E. All of these.
E. All of these.
How expectations are formed is important because expectations influence Select one: A. the demand for assets. B. bond prices. C. the risk structure of interest rates. D. the term structure of interest rates. E. All of these.
E. All of these.
According to the efficient market hypothesis Select one: A. one cannot expect to earn an abnormally high return by purchasing a security. B. information in newspapers and in the published reports of financial analysts is already reflected in market prices. C. unexploited profit opportunities abound, thereby explaining why so many people get rich by trading securities. D. All of these are true. E. only one cannot expect to earn an abnormally high return by purchasing a security and information in newspapers and in the published reports of financial analysts is already reflected in market prices are true.
E. only one cannot expect to earn an abnormally high return by purchasing a security and information in newspapers and in the published reports of financial analysts is already reflected in market prices are true.
As a winner of the Conn Coll lottery, you can choose one of the following prizes: 1) $100,000 now 2) $5,000 a year forever 3) $10,000 for each year for the next ten years. a. If the interest rate is 6%, which is the most valuable prize? Select one: a.$5,000 a year forever b.$100,000 now c.$10,000 a year for the next ten years
b.$100,000 now
As a winner of the Conn Coll lottery, you can choose one of the following prizes: 1) $100,000 now 2) $5,000 a year forever 3) $10,000 for each year for the next ten years. a. If the interest rate is now 4%, which is the most valuable prize? Select one: a.$100,000 now b.$10,000 for each year for the next ten years. c.$5,000 a year forever
c.$5,000 a year forever
