The primary difference between simple and compound interest is that:
A) Simple interest is only paid at the end of the investment period.
B) Compound interest entails receiving interest payments on previously earned interest.
C) Compound interest is paid up front and not when the investment matures.
D) Simple interest is not taxed by the federal government.
E) Simple interest earns a higher interest rate on reinvested interest than compound interest.
B
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Robertsons, Inc., is planning to expand ita specialty stores into five other states and finance the expansion by issuing 15-year zero coupon bonds with a face value of $1,000. If your opportunity cost is 8 percent and similar coupon-bearing bonds will pay semiannually, what will be the price at which you will be willing to purchase these bonds?
A) $308 B) $383 C) $803 D) $866
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