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Tony deposited $ 5 0 0 0 this morning into an account that pays 5 percent interest, compounded annually. At the same time, Morgan also

Tony deposited $5000 this morning into an account that pays 5 percent interest, compounded annually. At the same time, Morgan also deposited $5,000 this morning into an account that pays 5 percent interest compounded annually. Tony will withdraw his interest earnings and spend it as soon as possible when they are available. Morgan will reinvest her interest earnings into her account. Given this, which one of the following statements is true?
A) Morgan will earn more interest the second year than Tony.
B) Tony will earn more interest the first year than Morgan will.
C) After five years, Tony and Morgan will both have earned the same amount of interest.
D) Tony will earn compound interest.
Which one of the following compounding periods will yield the lowest effective annual rate (EAR) given a stated future value at year 5 and an annual percentage rate (APR) of 10 percent?
A) Continuous
B) Monthly
C) Quarterly
D) Semiannual
A company has a semi-annual coupon bond outstanding. An increase in the market rate of interest will have which one of the following effects on this bond?
A) Increase the market price
B) Decrease the market price
C) Increase the coupon rate
D) Decrease the coupon rate
A bond with 8 percent annual coupon rate originally sold at par for $1,000. The current market interest rate on this bond (or the bond's required rate of return or yield to maturity) is 6 percent. Assume no change in risk, this bond would sell at a n order to compensate
A) premium; the purchaser of the bond for the above market coupon rate
B) discount; the purchaser of the bond for the above market coupon rate
C) premium; the seller of the bond for above market coupon rate
D) discount; the seller of the bond for above market coupon rate
Please continue to the sections below for the problem-solving part of the exam.
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