Which of the Following Statements Is Correct

question 95

Multiple Choice

Which of the following statements is correct?

• A) A 15-year mortgage will have larger monthly payments than a 30-year mortgage.
• B) If an account earns 3 percent per year compounded annually, then it also has an effective annual rate (EAR) of 3 percent.
• C) The present value of a $500 perpetuity is greater if the interest rate is higher.
• D) The first, second, and third statements above are correct.
• E) Only the first and second, statements above are correct.

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Definitions:

Annually Compounded Interest

Interest on a loan or investment that is calculated once a year, adding the interest to the principal sum and basing future interest calculations on this new principal.

Amortized Daily Interest

Interest on a loan computed each day using the balance of the loan on that day, leading to a variable interest charge per billing period.

Discount Rate

In discounted cash flow analysis, this rate is crucial for the evaluation of the present value of cash flows anticipated in the future.

Monthly Payments

Regular payments made over a period of time, often used in the context of loans or financing agreements.