Which of the following statements is NOT CORRECT, assuming positive interest rat
ID: 2667745 • Letter: W
Question
Which of the following statements is NOT CORRECT, assuming positive interest rates?
Answer
a. If an investment pays 10% interest compounded annually, its effective rate will also be 10%.
b. A 15-year, $100,000 mortgage will have larger monthly payments than an otherwise similar 30-year mortgage.
c. An investment's nominal interest rate will always be equal to or greater than its effective annual rate.
d. Securities A and B offer the same nominal rate of interest, but A pays interest quarterly and B pays semiannually.
Investment B will have the higher present value.
Explanation / Answer
Which of the following statements is NOT CORRECT, assuming positive interest rates?
Answer
a. If an investment pays 10% interest compounded annually, its effective rate will also be 10%.
b. A 15-year, $100,000 mortgage will have larger monthly payments than an otherwise similar 30-year mortgage.
c. An investment's nominal interest rate will always be equal to or greater than its effective annual rate.
d. Securities A and B offer the same nominal rate of interest, but A pays interest quarterly and B pays semiannually.