1. Which of the following statements is incorrect?

a. Compounding increases the growth of the total interest earned.

b. Compound interest consists of both simple interest and interest on interest.

c. All the answers are correct except one.

d. Compounding is the process by which interest earned on an investment is reinvested so that in future periods, there is interest on interest as well as the original principal.

e. The term (1 + i) is the present value interest factor, often called simply the present value factor, for a single period, such as one year.

2. Which of the following statements is incorrect?

a. According to the strong-form of the efficient market hypothesis, the market for a security is perfectly informationally efficient if the security's price always reflects all information both public and private.

b. Real rate of interest is an interest rate determined in the absence of inflation.

c. All the answers are correct except one.

d. The loans of the business finance companies are never secured by accounts receivable or inventory but rather based on trust among the companies.

e. Money market instruments are lower in risk than other securities because of their high liquidity and low default risk.