Which of the following statements are true? Check all that apply.
a. With the same APR and principal, a 15-year loan will have a lower monthly payment than a 30-year loan.
b. Annuities assume that you put money in the account on a regular schedule (every month, year, quarter, etc.) and let it sit there earning interest.
c. Payout Annuities assume that you take money from the account on a regular schedule (every month, year, quarter, etc.) and let the rest sit there earning interest.
d. With the same term and principal, a loan at 5% APR will have a lower monthly payment than a loan at 6% APR.
To determine which of the statements are true, let's examine each statement one by one:
a. With the same APR and principal, a 15-year loan will have a lower monthly payment than a 30-year loan.
To verify this statement, we need to understand how loan terms and monthly payments are related. Generally, with the same principal and interest rate (APR), a shorter loan term results in a higher monthly payment. This is because the loan needs to be repaid in a shorter period of time, which increases the monthly payment amount. Therefore, statement a is not true.
b. Annuities assume that you put money in the account on a regular schedule (every month, year, quarter, etc.) and let it sit there earning interest.
To check the validity of this statement, let's define what an annuity is. An annuity is a financial product that involves regular payments or contributions made over a specific timeframe, often in return for future periodic payments. Based on this definition, statement b is accurate because annuities do require consistent contributions over time.
c. Payout Annuities assume that you take money from the account on a regular schedule (every month, year, quarter, etc.) and let the rest sit there earning interest.
This statement describes the nature of payout annuities accurately. Payout annuities involve regular withdrawals or payouts from an account while the remaining balance continues to earn interest. Therefore, statement c is true.
d. With the same term and principal, a loan at 5% APR will have a lower monthly payment than a loan at 6% APR.
Examining this statement, we should consider the impact of interest rates on loan payments. Generally, a lower interest rate corresponds to a lower monthly payment, assuming the same term and principal amount. Therefore, statement d is true.
In summary, the statements that are true are b, c, and d.