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

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%.

Quizplus · Accepted Answer

The present value of an annuity due is greater than that of an ordinary annuity because payments are received earlier, resulting in less discounting.

Which of the Following Statements Is CORRECT