Assignment #2

True/False

Indicate whether the statement is true or false.

__T__ 1. One potential benefit from starting to invest early for retirement is that the investor can expect greater benefits from the compounding of interest.

__F__ 2. If the discount (or interest) rate is positive, the present value of an expected series of payments will always exceed the future value of the same series.

__T__ 3. Disregarding risk, if money has time value, it is impossible for the present value of a given sum to exceed its future value.

__F__ 4. If a bank compounds savings accounts quarterly, the nominal rate will exceed the effective annual rate.

__T__ 5. The payment made each period on an amortized loan is constant, and it consists of some interest and some principal. The closer we are to the end of the loan's life, the greater the percentage of the payment that will be a repayment of principal.

__F__ 6. The greater the number of compounding periods within a year, then (1) the greater the future value of a lump sum investment at Time 0 and (2) the greater the present value of a given lump sum to be received at some future date.

__T__ 7. Suppose an investor plans to invest a given sum of money. She can earn an effective annual rate of 5% on Security A, while Security B will provide an effective annual rate of 12%. Within 11 years' time, the compounded value of Security B will be more than twice the compounded value of Security A. (Ignore risk, and assume that compounding occurs daily.)

__T__ 8. The present value of a future sum decreases as either the discount rate or the number of periods per year increases.

__T__ 9. All other factors held constant, the present value of a given annual annuity decreases as the number of discounting periods per year increases.

__T__ 10. As a result of compounding, the effective annual rate on a bank deposit (or a loan) is always equal to or greater than the nominal rate on the deposit (or loan).

__T__ 11....