Which of the Following Statements Is CORRECT

question 64

Multiple Choice

Which of the following statements is CORRECT?

• A) An investment that has a nominal rate of 6% with semiannual payments will have an effective rate that is smaller than 6%.
• B) The present value of a 3-year, $150 ordinary annuity will exceed the present value of a 3-year, $150 annuity due.
• C) If a loan has a nominal annual rate of 7%, then the effective rate will never be less than 7%.
• D) If a loan or investment has annual payments, then the effective, periodic, and nominal rates of interest will all be different.
• E) The proportion of the payment that goes toward interest on a fully amortized loan increases over time.

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Definitions:

Weak Form

In financial market theory, this term refers to the hypothesis that asset prices fully reflect all historical price information, arguing that past price movements are not predictive of future prices.

Market Efficiency

A concept describing the extent to which stock prices reflect all available, relevant information, making it impossible to consistently achieve higher returns.

Semi-strong Form

A form of the Efficient Market Hypothesis that asserts all public information is reflected in the stock prices.

Market Efficiency

Market efficiency is a concept where all available information is already reflected in asset prices, implying that assets are priced perfectly and it is impossible to "beat the market" through expert stock selection or market timing.