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fgiga [73]
3 years ago
11

"Which statements are TRUE about IO tranches? I When interest rates rise, the price of the tranche falls II When interest rates

rise, the price of the tranche rises III When interest rates fall, the price of the tranche falls IV When interest rates fall, the price of the tranche rises"
Business
1 answer:
horrorfan [7]3 years ago
5 0

The available options are:

A. I and III

B. I and IV

C. II and III

D. II and IV

Answer:

C. II and III

Explanation:

IO tranche which is an acronym for Interest Only tranche is defined as a form of tranche which earns interest only from a secured loan which is derived from Principal Only tranche.

However, Interest Only tranche is quite different from a typical bond, simply because when market interest rate increases the rate of prepayment decreases, which in turn makes the rate of maturity to be longer. Thereby when interest rates increase, prices increase, and vice versa.

Hence the true statements are:

II When interest rates rise, the price of the tranche rises

III When interest rates fall, the price of the tranche falls

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mr_godi [17]

The effective compound interest rate is 13.87%.

<h3><u>What is Compound Interest?</u></h3>
  • The interest on a loan or deposit that is calculated based on both the initial principle and the accumulated interest from prior periods is known as compound interest (also known as compounding interest).
  • Compound interest, sometimes known as "interest on interest," is said to have its roots in 17th-century Italy. Compared to simple interest, which is calculated solely on the principal amount, it will cause a sum to grow more quickly.
  • The frequency of compounding determines the rate at which compound interest accumulates.
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Nominal = interest rate

That is Nominal rate is also known as interest rate.

Nominal rate =  13.20%

The invested money is compounded quarterly.

Periodic = 13.2%/4 (quarterly)

Periodic rate = 3.30%

Now,

The interest rate that accounts for compounding over a specific time period is called the Effective Annual Interest Rate (EAR). The rate of interest that an investor can earn (or pay) in a year after taking into account compounding is known as the effective annual interest rate, to put it simply.

Effective annual rate = EFF% = [1 + (0.13200 / 4)]⁴ - 1 = 13.87%

Know more about Compound Interest with the help of the given link:

brainly.com/question/14295570

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klemol [59]

Lisa agrees to sell Deb an electronic entertainment center worth $1,000 for $700 in order to have a rapid sale. Later Lisa insists that she may rescind this agreement since the agreed price was 30% below fair market value. Lisa may not rescind since Lisa and Debbie freely agreed.

A trade show for the video game industry is called E3. For the purpose of introducing and publicizing new games and game-related items to retailers and the media, the Entertainment Software Association organizes and presents E3, which is attended by a large number of developers, publishers, hardware, and accessory makers.

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zavuch27 [327]

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Explanation:

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Answer:

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