Which of the Following Statements Is CORRECT,assuming Positive Interest Rates

question 54

Multiple Choice

Which of the following statements is CORRECT,assuming positive interest rates and holding other things constant?

• A) The present value of a 5-year,$250 annuity due will be lower than the PV of a similar ordinary annuity.
• B) A 30-year,$150,000 amortized mortgage will have larger monthly payments than an otherwise similar 20-year mortgage.
• C) A bank loan's nominal interest rate will always be equal to or less than its effective annual rate.
• D) If an investment pays 10% interest,compounded annually,its effective annual rate will be less than 10%.
• E) Banks A and B offer the same nominal annual rate of interest,but A pays interest quarterly and B pays semiannually.Deposits in Bank B will provide the higher future value if you leave your funds on deposit.

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Definitions:

Mistake

In legal terms, an erroneous belief, at contracting, that certain facts are true.

Fraudulent Misrepresentation

The act of intentionally making false statements to induce another party into a contract, resulting in harm or loss.

Express False Statement

An explicitly communicated untrue assertion, which can be a basis for a claim of deceit or fraud.

Mutual Mistake

An error shared by all parties to a contract, concerning a basic assumption on which the contract was based, that has a material effect on the agreed performance.