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Letitia borrowed $6,000 from her bank two years ago.The loan term is four years.Each year, she must repay the bank $1,500 plus the annual interest.Which type of loan does she have?


A) Amortized
B) Blended discount
C) Interest-only
D) Pure discount
E) Complex

F) C) and E)
G) A) and B)

Correct Answer

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You are comparing three investments, all of which pay $100 a month and have an interest rate of 8 percent.One is ordinary annuity, one is an annuity due, and the third investment is a perpetuity.Which one of the following statements is correct given these three investment options?


A) To be the perpetuity, the payments must occur on the first day of each monthly period.
B) The ordinary annuity would be more valuable than the annuity due if both had a life of 10 years.
C) The present value of the perpetuity has to be higher than the present value of either the ordinary annuity or the annuity due.
D) The future value of all three investments must be equal.
E) The present value of all three investments must be equal.

F) All of the above
G) C) and D)

Correct Answer

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First Bank offers personal loans at 7.7 percent compounded monthly.Second Bank offers similar loans at 7.4percent compounded daily.Which one of the following statements is correct concerning these loans? Assume a 365-day year.


A) The First Bank loan has an effective rate of 7.98 percent.
B) The Second Bank loan has an effective rate of 8.01 percent.
C) The annual percentage rate for the Second Bank loans is 7.68 percent.
D) Borrowers should prefer the loans offered by First Bank.
E) Both banks offer the same effective rate.

F) A) and D)
G) A) and C)

Correct Answer

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You owe $6,800on a car loan that has an interest rate of 6.75 percent and monthly payments of $310.You lost your job and your new job pays less, so your lender just agreed to lower the monthly payments to $225 while keeping the interest rate at 6.75 percent.How much longer will it take you to repay this loan than you had originally planned?


A) 10.50 months
B) 11.47 months
C) 9.74 months
D) 12.19 months
E) 18.90 months

F) A) and C)
G) All of the above

Correct Answer

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Freya plans to invest $3,200 a year for 25 years starting at the end of this year.How much will this investment be worth at the end of the 25years if she earns an average annual rate of return of 8.2 percent?


A) $2 63,837.69
B) $ 381,324.92
C) $ 245,897,34
D) $ 219,672.01
E) $ 240,885.11

F) B) and E)
G) A) and D)

Correct Answer

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E

Kristina started setting aside funds three years ago to save for a down payment on a house.She has saved $900 each quarter and earned an average rate of return of 4.8 percent.How much money does she currently have saved?


A) $11,542.10
B) $12,388.19
C) $15,209.80
D) $15,366.67
E) $16,023.13

F) A) and D)
G) D) and E)

Correct Answer

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You want to buy a new sports coupe for $84,600and the finance office at the dealership has quoted you an APR of 7.1 percent, compounded monthly, for 72 months.How much interest will you pay over the life of the loan assuming you make all payments on a timely basis?


A) $17,204
B) $16,048
C) $23,911
D) $20,686
E) $19,542

F) A) and B)
G) A) and C)

Correct Answer

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Lee pays 1 percent per month interest on his credit card account.When his monthly rate is multiplied by 12, the resulting answer is referred to as the:


A) annual percentage rate.
B) compounded rate.
C) effective annual rate.
D) perpetual rate.
E) simple rate.

F) C) and D)
G) All of the above

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A

Today, you are borrowing money and must repay the lender one year from now with a lump-sum payment of $12,800.How much money are you borrowing if the interest rate is 8.45 percent, compounded monthly?


A) $12,000.00
B) $10,550.00
C) $11,766.32
D) $10,762.14
E) $11,802.67

F) C) and D)
G) A) and C)

Correct Answer

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Which one of the following has the highest effective annual rate?


A) 6 percent compounded annually
B) 6 percent compounded semiannually
C) 6 percent compounded quarterly
D) 6 percent compounded daily
E) 6 percent compounded every 2 years

F) All of the above
G) A) and C)

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Assume your university earns an average rate of return of 5.65 percent on its endowment funds.If a new gift permanently increases annual scholarships by $32,000, what was the amount of the gift?


A) $784,090.91
B) $485,293.05
C) $615,384.62
D) $658,929.38
E) $566,371.68

F) A) and B)
G) A) and C)

Correct Answer

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City Loans wants to earn an effective annual return on its consumer loans of 18.9 percent per year.The bank applies daily compounding.What interest rate is the firm required by law to report to potential borrowers?


A) 17.47 percent
B) 17.32 percent
C) 17.86 percent
D) 16.39 percent
E) 18.90 percent

F) C) and E)
G) A) and B)

Correct Answer

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Compass Bank is offering an APR of.8 percent, compounded daily, on its savings accounts.If you deposit $2,500 today, how much will you have in the account in 15 years?


A) $2,567.15
B) $2,675.10
C) $2,761.32
D) $2,818.74
E) $2,890.62

F) D) and E)
G) C) and D)

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D

Janis just won a scholarship that will pay her $500 a month, starting today, and continuing for the next 48 months.Which one of the following terms best describes these scholarship payments?


A) Ordinary annuity
B) Annuity due
C) Consol
D) Ordinary perpetuity
E) Perpetuity due

F) None of the above
G) B) and D)

Correct Answer

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Anne plans to save $40 a week, starting next week, for ten years and earn a rate of return of 4.6 percent, compounded weekly.After the ten years, she will discontinue saving and invest her account at 6.5 percent, compounded annually.How long from now will it be before she has accumulated a total of $50,000?


A) 10.32 years
B) 21.14 years
C) 15.08 years
D) 11.14 years
E) 20.32 years

F) D) and E)
G) B) and E)

Correct Answer

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All else held constant, the future value of an annuity will increase if you:


A) decrease both the interest rate and the time period.
B) increase the time period.
C) decrease the present value.
D) decrease the payment amount.
E) decrease the interest rate.

F) C) and E)
G) B) and D)

Correct Answer

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Antonio wants to have $230,000 in an investment account ten years from now.The account will pay .42 percent interest per month.If he saves money every month, starting one month from now, how much will he have to save each month to reach his goal?


A) $1,478.01
B) $1,049.86
C) $1,391.05
D) $1,053.86
E) $1,360.94

F) B) and D)
G) B) and C)

Correct Answer

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A loan that compounds interest monthly has an EAR of 14.40 percent.What is the APR?


A) 13.53 percent
B) 13.59 percent
C) 13.96 percent
D) 14.07 percent
E) 14.10 percent

F) C) and E)
G) A) and C)

Correct Answer

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Oakville Trucking just signed a $5.0 million contract.The contract calls for a payment of $1.25 million today, $1.75 million one year from today, and $2.0 million two years from today.What is this contract worth today at a discount rate of 7.25 percent?


A) $4,923,275.74
B) $4,620,444.63
C) $3,247,628.58
D) $4.341,851.15
E) $4,342,468.17

F) A) and D)
G) D) and E)

Correct Answer

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Appalachian Bank offers you a $30,000, 2-year term loan at an APR of 5.5 percent, compounded monthly.What will be your monthly loan payment?


A) $1,307.16
B) $1,250.00
C) $1,960.02
D) $1,389.20
E) $1,322.87

F) B) and E)
G) B) and D)

Correct Answer

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