Monthly principal and interest payments on a loan which is fully amortized over

Question

Monthly principal and interest payments on a loan which is fully amortized over its life, and under which payments begin ONE MONTH AFTER the borrower gets the Loan Proceeds are in the form of: A Perpetuity An Annuity DUE An ORDINARY Annuity An Amortization Perpetuity Andy deposited $3, 000 this morning into an account that pays 5 percent interest, compounded annually. Barb also deposited $3, 000 this morning into an account that pays 5 percent interest, compounded annually. Andy will WITHDRAW his interest earnings and spend it EACH YEAR. Barb will reinvest her interest earnings in her account. Given these choices by Andy and Barb, which one of the following statements is true? Barb will earn more FIRST YEAR than Andy will. Andy will earn more interest in YEAR THREE than Barb will. Andy is effectively earning SIMPLE INTEREST on his investment. After five years, Andy and Barb will both have earned the same amount of interest. Which one of the following will increase the PRESENT VALUE of a lump sum future amount? Assume the interest rate is a positive value and all interest is reinvested. increase in the time period increase in the interest rate decrease in the future value decrease in the interest rate none of the above Which one of the following statements is correct? The present value of an annuity increases when the interest rate increases. The present value of an annuity is unaffected by the number of the annuity payments. The future value of an annuity is unaffected by the amount of each annuity payment. The present value of an annuity increases when the interest rate decreases. (TRUE or FALSE) A perpetuity is a loan or bond which involves payment over a period of AT LEAST One Hundred Years.

Explanation / Answer

1. Paid Over its life than its not Perpetuity than a. and d. not a right option, for b. An annuity due Installment paid at begging than also b. not preffered remain Option C. An Ordinary Annuity Installment paid at end of the period (Here Month) than Answer is C.

2 On Withdrawing interest earning Andy Get Simple Interest On His Investment

Answer is C.

For Option A. On First Year Both Earn Equle Interest

For Option B. Barb Get more Interest from Second Year not Andy

For Option D. After five Years Barb Get More Interest than Andy

3. a. Increase In time Period Discounted More : False

b. Increase in Interest rate Decrese in PV : False

c. Decrease in Future Value also Decrese in PV : False

d. Decrease in Interest rate Increase in Present Value (Discounted with less value) : True

e. Answer is d.

4. For a. False: PV of annuity decrease when Interest rate Increase Discounted by More Value

b. False: Number of the annuity payments effect PV of annuity

c. False: Amount of each annuity payments effect PV of annuity

d. True: When Interest rate Decrease PV of annuity increase (Discounted by Less Amount)

5. Perpetuity is a n annuity that has no end or a continues forever than statement given is false

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