Which of the Following Statements Is CORRECT, Assuming Positive Interest

question 111

Multiple Choice

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

• A) 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.
• B) The present value of a 5-year, $250 annuity due will be lower than the PV of a similar ordinary annuity.
• C) A 30-year, $150,000 amortized mortgage will have larger monthly payments than an otherwise similar 20-year mortgage.
• D) A bank loan's nominal interest rate will always be equal to or greater than its effective annual rate.
• E) If an investment pays 10% interest, compounded quarterly, its effective annual rate will be greater than 10%.

Understand the Fisher effect and how inflation expectations affect nominal interest rates.

Understand the relationship between inflation rates and money demand.

Grasp the key assumptions of the quantity theory of money.

Calculate the impact of inflation on real income and interest rates.

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