Which of the Following Statements Is CORRECT, Assuming Positive Interest

question 54

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 less than its effective annual rate.
• E) if an investment pays 10% interest, compounded annually, its effective annual rate will be less than 10%.

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Definitions:

Rational Expectationists

Economists who argue that individuals make decisions based on their rational outlook, available information, and past experiences.

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The movement of money for the purpose of investment, trade, or business production across international borders.

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A bank whose chief function is the control of the nation’s money supply.

Marc Levinson

An economist, historian, and author known for his work on globalization, economics, and the history of business and technology.