Author Question: An investment is profitable as long as its internal rate of return is equal to the rate of interest. ... (Read 280 times)

imowrer · **on:** Jul 1, 2018

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?

aprice35067 · **Reply #1 on:** Jul 1, 2018

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.