Which of the following statements is CORRECT?
A) The present value of a 3-year,$150 annuity due will exceed the present value of a 3-year,$150 ordinary annuity.
B) If a loan has a nominal annual rate of 8%,then the effective rate can never be greater than 8%.
C) If a loan or investment has annual payments,then the effective,periodic,and nominal rates of interest will all be different.
D) The proportion of the payment that goes toward interest on a fully amortized loan increases over time.
E) An investment that has a nominal rate of 6% with semiannual payments will have an effective rate that is smaller than 6%.

Question

Quizplus · Accepted Answer

An annuity due involves receiving payments at the beginning of each period, while an ordinary annuity involves receiving payments at the end of each period. Because the payments in an annuity due are received earlier, they have more time to earn interest and result in a higher present value compared to an ordinary annuity of the same amount and duration.

Which of the Following Statements Is CORRECT