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Questions and Answers
What is the key difference between simple interest and compound interest?
What is the key difference between simple interest and compound interest?
- Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal and the accumulated interest. (correct)
- Simple interest is used for short-term loans, while compound interest is used for long-term investments.
- Simple interest is always higher than compound interest due to its straightforward calculation method.
- Compound interest is calculated annually, while simple interest is calculated monthly.
In the context of annuities, what does 'first payment/receipt in the first (beginning) of the period' refer to?
In the context of annuities, what does 'first payment/receipt in the first (beginning) of the period' refer to?
- Payments or receipts occur irregularly throughout the period, based on specific events.
- Payments or receipts occur at the beginning of each period, such as monthly rental payments. (correct)
- Payments or receipts occur at the end of each period, such as annual dividends.
- Payments or receipts occur once at the beginning of the annuity period and then cease.
How is the present value concept used in the valuation of bonds?
How is the present value concept used in the valuation of bonds?
- It is used to assess the market demand for the bond in the present time.
- It is used to determine the current worth of the future interest and principal payments of the bond. (correct)
- It is used to calculate the total interest accrued over the bond's lifetime.
- It is used to estimate the future value of the bond at the time of maturity.
What is the purpose of a sinking fund in the context of capital expenditure?
What is the purpose of a sinking fund in the context of capital expenditure?
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What does the effective rate of interest represent in the context of leasing?
What does the effective rate of interest represent in the context of leasing?
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