Suppose you have a choice of two equally risky annuities, each paying $1,000 per

Question

Suppose you have a choice of two equally risky annuities, each paying $1,000 per year for 20 years. One is an annuity due, while the other is an ordinary annuity. Which annuity would you choose? Answer
the ordinary annuity
the annuity due
either one because the annuities have the same present value
without information about the appropriate interest rate, we cannot tell which annuity is better

The rate of interest actually paid or earned, also called the annual percentage rate (APR), is the ________ interest rate. Answer
effective.
nominal.
discounted.
continuous. If $1,000 were invested now at a 12% interest rate compounded annually, what would be the value of the investment in two years? Answer
$1,254
$1,210
$1,188
$1,160
The interest rate that measures the true interest rate when compounding occurs more frequently than once a year is called the: Answer
annual percentage rate
compound rate of interest
stated rate of interest
effective annual rate

An annuity with an infinite life is called a (n) Answer
perpetuity.
infinity.
effective annual rate.
continuous annuity.

Suppose you have a choice of two equally risky annuities, each paying $1,000 per year for 20 years. One is an annuity due, while the other is an ordinary annuity. Which annuity would you choose? Suppose you have a choice of two equally risky annuities, each paying $1,000 per year for 20 years. One is an annuity due, while the other is an ordinary annuity. Which annuity would you choose? the ordinary annuity the annuity due either one because the annuities have the same present value without information about the appropriate interest rate, we cannot tell which annuity is better

The rate of interest actually paid or earned, also called the annual percentage rate (APR), is the ________ interest rate. Answer
effective.
nominal.
discounted.
continuous. If $1,000 were invested now at a 12% interest rate compounded annually, what would be the value of the investment in two years? Answer
$1,254
$1,210
$1,188
$1,160
The interest rate that measures the true interest rate when compounding occurs more frequently than once a year is called the: Answer
annual percentage rate
compound rate of interest
stated rate of interest
effective annual rate

An annuity with an infinite life is called a (n) Answer
perpetuity.
infinity.
effective annual rate.
continuous annuity.

effective. nominal. discounted. continuous. $1,254 $1,210 $1,188 $1,160 The interest rate that measures the true interest rate when compounding occurs more frequently than once a year is called the: The interest rate that measures the true interest rate when compounding occurs more frequently than once a year is called the: annual percentage rate compound rate of interest stated rate of interest effective annual rate

An annuity with an infinite life is called a (n) Answer
perpetuity.
infinity.
effective annual rate.
continuous annuity.
perpetuity. infinity. effective annual rate. continuous annuity.
the ordinary annuity
the annuity due
either one because the annuities have the same present value
without information about the appropriate interest rate, we cannot tell which annuity is better

The rate of interest actually paid or earned, also called the annual percentage rate (APR), is the ________ interest rate. Answer
effective.
nominal.
discounted.
continuous. If $1,000 were invested now at a 12% interest rate compounded annually, what would be the value of the investment in two years? Answer
$1,254
$1,210
$1,188
$1,160
The interest rate that measures the true interest rate when compounding occurs more frequently than once a year is called the: Answer
annual percentage rate
compound rate of interest
stated rate of interest
effective annual rate

An annuity with an infinite life is called a (n) Answer
perpetuity.
infinity.
effective annual rate.
continuous annuity.

Explanation / Answer

1. Annuity due because you get your money earlier (at the beginning of the period as opposed to the end).

2. Effective.

3.1,000*1.12^2=1254.4 A)

4. Effective anuual rate (EAR)

5. perpetuity.

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