Which of the following is NOT CORRECT? Answer a. An investment that compounds in

Question

Which of the following is NOT CORRECT?

Answer
a. An investment that compounds interest semiannually, and has a nominal rate of 10%, will have an effective rate less than 10%.

b. If there is annual compounding, then the effective, periodic, and nominal rates of interest are all the same.

c. The present value of a 5-year, $100 annuity due will exceed the present value of a 5-year, $100 ordinary annuity.

d. The proportion of the payment of a fully amortized loan that goes toward interest declines over time.

Explanation / Answer

Which of the following is NOT CORRECT?

Answer
a. An investment that compounds interest semiannually, and has a nominal rate of 10%, will have an effective rate less than 10%.

b. If there is annual compounding, then the effective, periodic, and nominal rates of interest are all the same.

c. The present value of a 5-year, $100 annuity due will exceed the present value of a 5-year, $100 ordinary annuity.

d. The proportion of the payment of a fully amortized loan that goes toward interest declines over time.

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