1. When a loan is amortized, a relatively low percentage of the payment goes to reduce the outstanding principal in the early years, and the principal repayment's percentage increases in the loan's later years.
True
False
2. Which of the following bank accounts has the lowest effective annual return?
a. An account that pays 8% nominal interest with daily (365-day) compounding.
b. An account that pays 8% nominal interest with annual compounding.
c. An account that pays 8% nominal interest with monthly compounding.
d. An account that pays 7% nominal interest with monthly compounding.
e. An account that pays 7% nominal interest with daily (365-day) compounding.
3. Which of the following statements is CORRECT?
a. Time lines can be constructed for annuities where the payments occur at either the beginning or the end of the periods.
b. Some of the cash flows shown on a time line can be in the form of annuity payments, but none can be uneven amounts.
c. A time line is not meaningful unless all cash flows occur annually.
d. Time lines are not useful for visualizing complex problems prior to doing actual calculations.
e. Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly.