Which of the following statements is CORRECT, assuming positive interest rates a

Question

Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant? a The present value of a 5-year, $250 annuity due will be lower than the PV of a similar ordinary annuity. b A 30-year, $150,000 amortized mortgage will have larger monthly payments than an otherwise similar 20-year mortgage. c A bank loan's nominal interest rate will always be equal to or less than its effective annual rate. d If an investment pays 10% interest, compounded annually, its effective annual rate will be less than 10%. e Banks A and B offer the same nominal annual rate of interest, but A pays interest quarterly and B pays semiannually. Deposits in Bank B will provide the higher future value if you leave your funds on deposit.

Explanation / Answer

A bank loan's nominal interest rate will always be equal to or less than its effective annual rate.

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