Which of the Following Statements Is NOT Correct

question 21

Multiple Choice

Which of the following statements is NOT 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 less than 8%.
• C)If a loan or investment has annual payments, then the effective, periodic, and nominal rates of interest will all be the same.
• D)An investment that has a nominal rate of 6% with semiannual payments will have an effective rate that is less than 6%.

---

Definitions:

Interest Payments

Interest payments are the amounts paid by borrowers to lenders as compensation for the use of borrowed money or assets, typically expressed as an annual percentage rate.

Compensating Balances

Compensating balances are minimum account balances that a company agrees to maintain in a bank account as part of a borrowing arrangement to offset bank service charges or qualify for better loan terms.

Cash Discount

A reduction in the invoice price offered by sellers to buyers for prompt payment of their bill, aimed at encouraging early payment.

Commercial Paper

An unsecured, short-term debt instrument issued by corporations, typically used for financing inventory and accounts receivable.