Question
1. Which of the following statements is correct? a. All the answers are correct. b. The APR is the true cost of borrowing and lending,
1. Which of the following statements is correct?
a. All the answers are correct.
b. The APR is the true cost of borrowing and lending, it is the rate that should be used for making all finance decisions.
c. Growing perpetuity is widely used in the valuation of common stock of firms that have a policy and history of paying dividends that grow at a constant rate.
d. With an amortizing loan, each loan payment goes only for the repayment of principal at the early stages of the loan maturity.
e. If you have received news about an inheritance that will pay you $5,000 next year, and also at the beginning the following year, your inheritance will increase by 5 percent every year forever, then this is an example of growing annuity.
2. Which of the following statements is correct?
a. In 1928 Congress passed the No Truth-in-Lending Act to ensure that all borrowers do not receive meaningful information about the cost of credit so that they cannot make intelligent economic decisions.
b. The present value of multiple cash flows is less than the sum of those cash flows.
c. The Truth-in-Savings Act does not apply to consumer savings vehicles such as certificates of deposit (CDs), and both the Truth-in-Savings Act and the Truth-in-Lending Act do not require by law that the APR be disclosed on all consumer loans and savings plans and that it be prominently displayed on advertising and contractual documents.
d. The present value of a perpetuity is less than the present value of a 100-year ordinary annuity as long as the discount rate is positive.
e. All the answers are correct.
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