Which of the following statements is most correct? A 5-year P100 annuity due will have a higher present value than a 5-year P100 ordinary annuity. A 15-year mortgage will have larger monthly payments than a 30-year mortgage of the same amount and same interest rate. If an investment pays 10 percent interest compounded annually, its effective rate will also be 10 percent. Statements a and c are correct. All of the statements above are correct.

Which of the following statements is most correct? A 5-year P100 annuity due will have a higher present value than a 5-year P100 ordinary annuity. A 15-year mortgage will have larger monthly payments than a 30-year mortgage of the same amount and same interest rate. If an investment pays 10 percent interest compounded annually, its effective rate will also be 10 percent. Statements a and c are correct. All of the statements above are correct.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section4.17: Amortized Loans

Problem 1ST

See similar textbooks

Similar questions

(1) What is the value at the end of Year 3 of the following cash flow stream if the quoted interest rate is 10%, compounded semiannually? (2) What is the PV of the same stream? (3) Is the stream an annuity? (4) An important rule is that you should never show a nominal rate on a time line or use it in calculations unless what condition holds? (Hint: Think of annual compounding, when INOM = EFF% = IPER.) What would be wrong with your answers to parts (1) and (2) if you used the nominal rate of 10% rather than the periodic rate, INOM/2 = 10%/2 = 5%?
Which of the following statements regarding a 20-year monthly payment amortized mortgage with a nominal interest rate of 10% is CORRECT? a. The monthly payments will increase over time. b. A larger proportion of the first monthly payment will be interest, and a smaller proportion will be principal, than for the last monthly payment. c. The total dollar amount of interest being paid off each month gets larger as the loan approaches maturity. d. The amount representing interest in the first payment would be higher if the nominal interest rate were 7% rather than 10%. e. Exactly 10% of the first monthly payment represents interest.
Which of the following statements is CORRECT? An investment that has a nominal rate of 6% with semiannual payments will have an effective rate that is smaller than 6%. If a loan has a nominal annual rate of 8%, then the effective rate can never be greater than 8%. If a loan or investment has annual payments, then the effective, periodic, and nominal rates of interest will all be different. The present value of a 3-year, $150 annuity due will exceed the present value of a 3-year, $150 ordinary annuity.
Explain the nature of the potential lending losses associated with each of the following: default risk, liquidity risk, and maturity risk. What would you pay for an annuity paying $3,000 per year for 12 years if the interest rate is 10%?
What is the future value of an ordinary annuity that pays $4,600 per year for 4 years? The appropriate interest rate is 7 percent. Answers: a. $10,000 b. $6,452 c. $20,423.74 d. $4,657 An investment will pay $600 at the end of each of the next 2 years, $700 at the end of Year 3, and $1,000 at the end of Year 4. What is its present value if other investments of equal risk earn 6 percent annually? Answers: a. $1,134 b. $5,324 c. $2,345.50 d. $2,569.77 *PLEASE SHOW ALL STEPS! CANNOT USE EXCEL TO SOLVE! CAN USE CALCULATOR FUNCTIONS!!
Which of the following statements regarding a 30-year monthly payment amortized mortgage with a nominal interest rate of 8% is CORRECT? Exactly 8% of the first monthly payment represents interest. The monthly payments will decline over time. A smaller proportion of the last monthly payment will be interest, and a larger proportion will be principal, than for the first monthly payment. The total dollar amount of principal being paid off each month gets smaller as the loan approaches maturity. The amount representing interest in the first payment would be higherif the nominal interest rate were 6% rather than 8%.
If the future value of an ordinary, 4-year annuity is $1,000 and interest rates are 6 percent, what is the future value of the same annuity due?
Suppose you are going to receive $12,700 per year for six years. The appropriate interest rate is 7.6 percent. a-1. What is the present value of the payments if they are in the form of an ordinary annuity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a-2.What is the present value if the payments are an annuity due? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b-1. Suppose you plan to invest the payments for six years. What is the future value if the payments are an ordinary annuity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b-2. Suppose you plan to invest the payments for six years. What is the future value if the payments are an annuity due? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Suppose you are going to receive $14,500 per year for five years. The appropriate interest rate is 8 percent. a-1. What is the present value of the payments if they are in the form of an ordinary annuity? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. a-2. What is the present value of the payments if the payments are an annuity due? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b-1. Suppose you plan to invest the payments for five years. What is the future value if the payments are an ordinary annuity? Note: Do not round intermediate..
Assume you are considering a $1,000,000 mortgage at a quoted rate of 4.25%. If you want to make equal monthly payments based on a 20-year amortization period, what discount rate would you use in the annuity present value formula to find the amount of your payments?
Which of the following statements is most correct? Group of answer choices The value of a perpetuity (say for $100 per year) will approach infinity as the interest rate used to evaluate the perpetuity approaches zero. If you are lending money, then, based on effective interest rates, you should prefer to lend at a 10 percent simple, or quoted, rate but with semiannual payments, rather than at a 10.1 percent simple rate with annual payments. However, as a borrower you should prefer the annual payment loan. The first payment under a 3-year, annual payment, amortized loan for $1,000 will include a smaller percentage (or fraction) of interest if the interest rate is 5 percent than if it is 10 percent. All of these.
What is the future value of an ordinary annuity that promises $60,000 per year for 10 years if the appropriate interest rate is 4% in excel formula