Which of the following serve as intermediaries channeling the savings of individuals, businesses and governments into loans and
1 answer:
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Answer:
Statement a. is correct.
Explanation:
The effective annual rate is always higher than the nominal interest rate, as the formula is clear for any number of periods, for any interest rate:
Effective Annual Rate of return =
Further if we calculate the present value of annuity due and ordinary annuity assuming 6 % interest rate, then:
Present value of annuity due =
= 1.06 $400.95
= $425.0089
Present value of ordinary annuity =
= $150 2.6730
= $400.95
Therefore, value of annuity due is more than value of ordinary annuity.
Statement a. is correct.