Which of the following statements is CORRECT, assuming positive interest rates a
ID: 2719036 • Letter: W
Question
Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant?
The present value of a 5-year, $250 annuity due will be lower than the PV of a similar ordinary annuity.
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.
A 30-year, $150,000 amortized mortgage will have larger monthly payments than an otherwise similar 20-year mortgage.
If an investment pays 10% interest, compounded annually, its effective annual rate will be less than 10%.
A bank loan's nominal interest rate will always be equal to or less than its effective annual rate.
A.The present value of a 5-year, $250 annuity due will be lower than the PV of a similar ordinary annuity.
B.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.
C.A 30-year, $150,000 amortized mortgage will have larger monthly payments than an otherwise similar 20-year mortgage.
D.If an investment pays 10% interest, compounded annually, its effective annual rate will be less than 10%.
E.A bank loan's nominal interest rate will always be equal to or less than its effective annual rate.
Explanation / Answer
The correct answer is a
The present value of a 5-year, $250 annuity due will be lower than the PV of a similar ordinary annuity.
The present value of a 5-year, $250 annuity due will be lower than the PV of a similar ordinary annuity.
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