You Are Considering Two Equally Risky Annuities, Each of Which

question 58

Multiple Choice

You are considering two equally risky annuities, each of which pays
$5,000 per year for 10 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. 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.

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Definitions:

ADHD

Attention-Deficit/Hyperactivity Disorder, a neurodevelopmental disorder characterized by persistent patterns of inattention and/or hyperactivity-impulsivity that interferes with functioning or development.

Habit Reversal Therapy

A behavioral therapy technique aimed at helping individuals recognize and then modify or stop undesired habits or behaviors.

Stereotypic Movement Disorder

A motor disorder characterized by repetitive, seemingly driven, and apparently purposeless motor behavior, such as hand waving or head banging.

Oral Expression

The ability to express thoughts, feelings, or information verbally.