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Author Question: An investment is profitable as long as its internal rate of return is equal to the rate of interest. ... (Read 254 times)

imowrer

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An investment is profitable as long as its internal rate of return is equal to the rate of interest.
 
  Indicate whether the statement is true or false

Question 2

A recent purchaser of a bond that agrees to pay an annual nominal amount would hope that interest rates do not rise.
 
  What will be an ideal response?



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aprice35067

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Answer to Question 1

False. Such an investment has a profit of zero. The investment is profitable if the internal rate of return exceeds the interest rate.

Answer to Question 2

True, for two reasons. First, the person is locked into a lower interest rate. Second, if the person needs to sell the bond, he will incur a loss since at higher interest rates, bond prices fall.




imowrer

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Reply 2 on: Jul 1, 2018
YES! Correct, THANKS for helping me on my review


ryhom

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Reply 3 on: Yesterday
Thanks for the timely response, appreciate it

 

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