Which of the following statements is CORRECT?
A) The present value of a 3-year,$150 ordinary annuity will exceed the present value of a 3-year,$150 annuity due.
B) If a loan has a nominal annual rate of 8%,then the effective rate will never be less 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

The effective rate of interest on a loan or investment takes into account the effect of compounding, so it will always be equal to or greater than the nominal rate if there is more than one compounding period per year.

Which of the Following Statements Is CORRECT