Question

Which of the following statements is true? A given present value will result in a higher future value if annual compounding is used rather than monthly compounding, Effective Annual Rate is greater than Annual Percentage Rate when annual compounding is used. ОО A perpetuity with the cash flow starting two years from now will have the same present value as a perpetuity with the same cash flow starting a year from now. A group of cash flows of the same amount that occur every other month for the next 5 years can be considered an annuity.

Answer 1

Correct answer is Option (D)

The group of cashflows of same amount occuring in alternative months for next 5 years.

The future value will be higher when monthly compounding used instead of annual compunding.

EAR is same as annual percentage rate when annual compounding is used.

The present value of perpetuity differ when the cashflow start one year later. The cashflow which begin 1 year before will have higher present value.