QUESTION 16

Which of the following statements is CORRECT?

	a.	An investment that has a nominal rate of 6% with semiannual payments will have an effective rate that is smaller than 6%.
	b.	If a loan has a nominal annual rate of 8%, then the effective rate will never be less than 8%.
	c.	If a loan or investment has annual payments, then the effective, periodic, and nominal rates of interest will all be different.
	d.	The proportion of the payment that goes toward interest on a fully amortized loan increases over time.
	e.	The present value of a 3-year, $150 ordinary annuity will exceed the present value of a 3-year, $150 annuity due.

QUESTION 17

Which of the following statements is CORRECT?

	a.	If you solve for I and get a negative number, then you must have made a mistake.
	b.	If CF0 is positive and all the other CFs are negative, then you cannot solve for I.
	c.	To solve for I, one must identify the value of I that causes the PV of the positive CFs to equal the absolute value of the PV of the negative CFs. This is, essentially, a trial-and-error procedure that is easy with a computer or financial calculator but quite difficult otherwise.
	d.	If you have a series of cash flows, each of which is positive, you can solve for I, where the solution value of I causes the PV of the cash flows will be more than the cash flow at Time 0.
	e.	If you have a series of cash flows, and CF0 is negative but each of the following CFs is positive, you can solve for I, but only if the sum of the undiscounted cash flows exceeds the cost.

QUESTION 18

Which of the following statements is CORRECT?

	a.	The cash flows for an annuity due must all occur at the beginning of the periods.
	b.	The cash flows for an annuity may vary from period to period, but they must occur at regular intervals, such as once a year or once a month.
	c.	If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity.
	d.	The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods.
	e.	If some cash flows occur at the beginning of the periods while others occur at the ends, then we have what the textbook defines as a variable annuity.

QUESTION 19

Which of the following statements is CORRECT?

	a.	The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods.
	b.	The cash flows for an annuity due must all occur at the ends of the periods.
	c.	If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity.
	d.	The cash flows for an annuity must all be equal, and they must occur at regular intervals, such as once a year or once a month.
	e.	If some cash flows occur at the beginning of the periods while others occur at the ends, then we have what the textbook defines as a variable annuity.