A lump sum payment of $1,000 is due at the end of 5 years. The nominal interest
ID: 2734337 • Letter: A
Question
A lump sum payment of $1,000 is due at the end of 5 years. The nominal interest rate is 10%, semiannual compounding. Which of the following statements is CORRECT? The present value of the $1,000 would be greater if interest were compounded monthly rather than semiannually. The PV if the $1,000 lump sum has a higher present value than the PV of a 5-year, $200 ordinary annuity. The periodic rate is greater than 5%. The present value would be greater if the lump sum were discounted back for more periods. The periodic interest rate is 5%.
Explanation / Answer
Ans: The present value of the $1,000 would be greater if interest were compounded monthly rather than semiannually. is correct
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