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Which of the following statements is most correct? Select one: a. Other things equal, a 15-year...

Which of the following statements is most correct?

Select one:

a. Other things equal, a 15-year mortgage will have smaller monthly payments than a 30-year mortgage of the same amount and same interest rate.

b. An investment's periodic interest rate will always be equal to or greater than its nominal interest rate.

c. Other things equal, A 5-year $100 annuity due will have a smaller present value than a 5-year $100 ordinary annuity.

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

e. If an investment pays 10 percent interest compounded annually, its effective rate will be greater than 10 percent.

Solutions

Expert Solution

Ans- Option D. An investment's nominal interest rate will always be equal to or smaller than its effective annual rate

Because Nominal Interest rate can be equal to effective interest rate if compounding is annually while Nominal Interest rate will be smaller to effective interest rate if compounding is other than annually.

- The following statmenst are not most correct because:-

a. Other things equal, a 15-year mortgage will have "higher" and not smaller monthly payments than a 30-year mortgage of the same amount and same interest rate.

b. An investment's periodic interest rate will always be equal to or "smaller" rather than greater than its nominal interest rate.

c. Other things equal, A 5-year $100 annuity due will have a "higher" rather than smaller present value than a 5-year $100 ordinary annuity.

e. If an investment pays 10 percent interest compounded annually, its effective rate will be "Equal" to rather greater than 10 percent.

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jeff jeffy answered 1 year ago
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