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:

Periodic Method

A method of inventory accounting where updates to inventory levels and cost of goods sold are made at the end of an accounting period.

Gross Method

An accounting method where purchases are recorded at their full purchase price without deducting any cash discounts.

Periodic Inventory Method

An accounting practice where inventory levels and cost of goods sold are calculated at predetermined intervals, such as monthly or annually.

Voucher System

A control mechanism in accounting that uses vouchers to record transaction details and authorize cash disbursements.