Write TRUE if the statement is true and FALSE if otherwise. 1. Compounding refers to the earning of interest on interest. 2. Discounting refers to the process of bringing the future back to the present. 3. The more frequently interest is compounded, the larger will be the final or terminal amount. 4. It takes longer than 8 years to retire a $24,000 loan at 8% if the annual payment is $3,000. 5. An annuity of $100 for 10 years is currently lessvaluable if interest rates are 10% instead of 12%. 6. If a person buys a stock for $10 and sells it after 10years for $20, the annual compound return is 10%. 7. Higher rates of interest are associated with greater present values. 8. If interest rates are 9 percent, an annuity of $100 for 10 years is to be preferred to $1,000 after 10 years. 9. If a bank pays 5 percent compounded semi-annually, the true rate of interest is less than 5 percent annually.
Write TRUE if the statement is true and FALSE if otherwise. 1. Compounding refers to the earning of interest on interest. 2. Discounting refers to the process of bringing the future back to the present. 3. The more frequently interest is compounded, the larger will be the final or terminal amount. 4. It takes longer than 8 years to retire a $24,000 loan at 8% if the annual payment is $3,000. 5. An annuity of $100 for 10 years is currently lessvaluable if interest rates are 10% instead of 12%. 6. If a person buys a stock for $10 and sells it after 10years for $20, the annual compound return is 10%. 7. Higher rates of interest are associated with greater present values. 8. If interest rates are 9 percent, an annuity of $100 for 10 years is to be preferred to $1,000 after 10 years. 9. If a bank pays 5 percent compounded semi-annually, the true rate of interest is less than 5 percent annually.
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 3PB: Use the tables in Appendix B to answer the following questions. A. If you would like to accumulate...
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Question
Write TRUE if the statement is true and FALSE if otherwise.
1. Compounding refers to the earning of interest on interest.
2. Discounting refers to the process of bringing the future back to the present.
3. The more frequently interest is compounded, the larger will be the final or terminal amount.
4. It takes longer than 8 years to retire a $24,000 loan at 8% if the annual payment is $3,000.
5. An annuity of $100 for 10 years is currently lessvaluable if interest rates are 10% instead of 12%.
6. If a person buys a stock for $10 and sells it after 10years for $20, the annual compound return is 10%.
7. Higher rates of interest are associated with greater present values.
8. If interest rates are 9 percent, an annuity of $100 for 10 years is to be preferred to $1,000 after 10 years.
9. If a bank pays 5 percent compounded semi-annually, the true rate of interest is less than 5 percent annually.
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