Effective rates are equivalent for annual compounding

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Reference no: EM131588097

True or false

An annuity due is an equal stream of cash flows is paid or received at the beginning of each period.

$100 is received at the beginning of year 1, $200 is received at the beginning of year 2, and $300 is received at the beginning of year 3. If these cash flows are deposited at 12 percent, their combined future value at the end of year 3 is $1,245.

The nominal and effective rates are equivalent for annual compounding.

In general, with an amortized loan, the payment amount grows over the life of the loan, the principal portion of each payment grows over the life of the loan, and the interest portion declines over the life of the loan.

When computing the number of deposits needed to accumulate a future sum, it will take longer if the interest rates are higher, holding the future value and deposit size constant.

Reference no: EM131588097

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