# Multiple Choice- Annuities

The future value of a lump sum at the end of five years is $1,000. The nominal interest rate is 10 percent and interest is compounded semiannually. Which of the following statements is most correct?

a. The present value of the $1,000 is greater if interest is compounded monthly rather than semiannually.

b. The effective annual rate is greater than 10 percent.

c. The periodic interest rate is 5 percent.

d. Both statements b and c are correct.

e. All of the statements above are correct.

You can earn 8 percent interest, compounded annually. How much must you deposit today to withdraw $10,000 in 6 years?

a. $5,402.69

b. $6,301.70

c. $6,756.76

d. $8,432.10

e. $9,259.26

Please see attached for all questions.

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#### Solution Preview

The future value of a lump sum at the end of five years is $1,000. The nominal interest rate is 10 percent and interest is compounded semiannually. Which of the following statements is most correct?

a. The present value of the $1,000 is greater if interest is compounded monthly rather than semiannually.

b. The effective annual rate is greater than 10 ...