Which of the following statements is NOT CORRECT, assuming positive interest rat

Question

Which of the following statements is NOT CORRECT, assuming positive interest rates?

Answer
a. If an investment pays 10% interest compounded annually, its effective rate will also be 10%.

b. A 15-year, $100,000 mortgage will have larger monthly payments than an otherwise similar 30-year mortgage.

c. An investment's nominal interest rate will always be equal to or greater than its effective annual rate.

d. Securities A and B offer the same nominal rate of interest, but A pays interest quarterly and B pays semiannually.

Investment B will have the higher present value.

Explanation / Answer

Which of the following statements is NOT CORRECT, assuming positive interest rates?

Answer
a. If an investment pays 10% interest compounded annually, its effective rate will also be 10%.

b. A 15-year, $100,000 mortgage will have larger monthly payments than an otherwise similar 30-year mortgage.

c. An investment's nominal interest rate will always be equal to or greater than its effective annual rate.

d. Securities A and B offer the same nominal rate of interest, but A pays interest quarterly and B pays semiannually.

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