FIN 534 RANK Imagine Your Future /fin534rank.com FIN 534 RANK Imagine Your Future /fin534rank.com | Page 73

5. 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?
1) A rational investor would be willing to pay more for DUE than for
ORD, so their market prices should differ.
2) The present va lue of DUE exceeds the present value of ORD, while
the future value of DUE is less than the future value of ORD.
3) The present value of ORD exceeds the present value of DUE, and the
future value of ORD also exceeds the future value of DUE.
4) The present value of ORD exceeds the present value of DUE, while
the future value of DUE exceeds the future value of ORD.
5) 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.
6.
Which of the following statements regarding a 30-year monthly
payment amortized mortgage with a nominal interest rate of 10% is
CORRECT?
1)
The monthly payments will decline over time
2) A smaller proportion of the last monthly payment will be interest,
and a larger proportion will be principal, than for the first monthly
payment