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4) Investment D pays $2,500 at the end of 10 years (just one
payment).
5) Investment E pays $250 at the end of every year for the next 10
years (a total of 10 payments).
10. Which of the following statements is CORRECT?
The present value of a 3-year, $150 annuity due will exceed the present
value of a 3-year, $150 ordinary annuity.
If a loan has a nominal annual rate of 8%, then the effective rate can
never be greater than 8%.
If a loan or investment has annual payments, then the effective, periodic,
and nominal rates of interest will all be different.
The proportion of the payment that goes toward interest on a fully
amortized loan increases over time.
An investment that has a nominal rate of 6% with semiannual payments
will have an effective rate that is smaller than 6%
11. Which of the following statements regarding a 15-year (180-month)
$125,000, fixed-rate mortgage is CORRECT? (Ignore taxes and
transactions costs.)
1)
The remaining balance after three years will be $125,000 less one
third of the interest paid during the first three years.
2) Because the outstanding balance declines over time, the monthly
payments will also decline over time.