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How to Solve Interest theory — relationships among rate measures Questions on Exam FM

Exam FM Topic: Interest theory — relationships among rate measures Verified Procedural Question
Sample Practice Problem ID: #9ZB7P
Let i be the annual effective interest rate and \(d\) the annual effective discount rate for the same year. Which relationship is correct?
(A)d = 1 / (1 + i)
(B)d = i
(C)d = 1 - i
(D)d = i / (1 + i)
(E)d = i / (1 - i)
📖 Worked Solution & Strategy
Reasoning Compare rate measures through their one-period accumulation and discount factors. Equivalent rates must produce the same ending value from the same starting value.
Application Since 1-\(d\) is the one-period discount factor \(v=1/(1+i)\), \(d=1-v=i/(1+i)\). Answer The answer is d = i / (1 + i), option (D).

Final Answer: Option (D)

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