Which of the following statements is CORRECT? Answer The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods. If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity. The cash flows for an annuity due must all occur at the beginning of the periods. 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. 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. .2 points Question 13 Your bank account pays a 6% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT? Answer The periodic rate of interest is 1.5% and the effective rate of interest is 3%. The periodic rate of interest is 6% and the effective rate of interest is greater than 6%. The periodic rate of interest is 1.5% and the effective rate of interest is greater than 6%. The periodic rate of interest is 3% and the effective rate of interest is 6%. The periodic rate of interest is 6% and the effective rate of interest is also 6%. .2 points Question 14 You are considering two equally risky annuities, each of which pays $5,000 per year for 10 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of the following statements is CORRECT? Answer The present value of ORD must exceed the present value of DUE, but the future value of ORD may be less than the future value of DUE. The present value of DUE exceeds the present value of ORD, while the future value of DUE is less than the future value of ORD. The present value of ORD exceeds the present value of DUE, and the future value of ORD also exceeds the future value of DUE. The present value of DUE exceeds the present value of ORD, and the future value of DUE also exceeds the future value of ORD. If the going rate of interest decreases from 10% to 0%, the difference between the present value of ORD and the present value of DUE would remain constant. .2 points Question 15 A $150,000 loan is to be amortized over 7 years, with annual end-of-year payments. Which of these statements is CORRECT? Answer The annual payments would be larger if the interest rate were lower. If the loan were amortized over 10 years rather than 7 years, and if the interest rate were the same in either case, the first payment would include more dollars of interest under the 7-year amortization plan. The proportion of each payment that represents interest as opposed to repayment of principal would be higher if the interest rate were lower. The proportion of each payment that represents interest versus repayment of principal would be higher if the interest rate were higher. The proportion of interest versus principal repayment would be the same for each of the 7 payments. .2 points Question 16 Which of the following events would make it more likely that a company would choose to call its outstanding callable bonds? Answer The company