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-Phil can afford $200 a month for 5 years for a car loan.If the interest rate is 7.5 percent,how much can he afford to borrow to purchase a car? A) $8,750.00 B) $9,348.03 C) $9,981.06 D) $10,266.67 E) $10,400.00 -Phil can afford $200 a month for 5 years for a car loan.If the interest rate is 7.5 percent,how much can he afford to borrow to purchase a car?


A) $8,750.00
B) $9,348.03
C) $9,981.06
D) $10,266.67
E) $10,400.00

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

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-You are borrowing money today at 8.48 percent,compounded annually.You will repay the principal plus all the interest in one lump sum of $12,800 two years from today.How much are you borrowing? A) $9,900.00 B) $10,211.16 C) $10,877.04 D) $11,401.16 E) $11,250.00 -You are borrowing money today at 8.48 percent,compounded annually.You will repay the principal plus all the interest in one lump sum of $12,800 two years from today.How much are you borrowing?


A) $9,900.00
B) $10,211.16
C) $10,877.04
D) $11,401.16
E) $11,250.00

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

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Your grandmother is gifting you $125 a month for four years while you attend college to earn your bachelor's degree.At a 6.5 percent discount rate,what are these payments worth to you on the day you enter college?


A) $5,201.16
B) $5,270.94
C) $5,509.19
D) $5,608.87
E) $5,800.00

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

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-You are going to loan a friend $550 for one year at a 6 percent rate of interest,compounded annually.How much additional interest could you have earned if you had compounded the rate continuously rather than annually? A) $0.84 B) $1.01 C) $1.10 D) $1.23 E) $1.28 -You are going to loan a friend $550 for one year at a 6 percent rate of interest,compounded annually.How much additional interest could you have earned if you had compounded the rate continuously rather than annually?


A) $0.84
B) $1.01
C) $1.10
D) $1.23
E) $1.28

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

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-Nadine is retiring at age 62 and expects to live to age 85.On the day she retires,she has $402,000 in her retirement savings account.She is somewhat conservative with her money and expects to earn 6 percent during her retirement years.How much can she withdraw from her retirement savings each month if she plans to spend her last penny on the morning of her death? A) $1,909.92 B) $2,147.78 C) $2,219.46 D) $2,416.08 E) $2,688.77 -Nadine is retiring at age 62 and expects to live to age 85.On the day she retires,she has $402,000 in her retirement savings account.She is somewhat conservative with her money and expects to earn 6 percent during her retirement years.How much can she withdraw from her retirement savings each month if she plans to spend her last penny on the morning of her death?


A) $1,909.92
B) $2,147.78
C) $2,219.46
D) $2,416.08
E) $2,688.77

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

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Which one of the following terms is used to identify a British perpetuity?


A) ordinary annuity
B) amortized cash flow
C) annuity due
D) discounted loan
E) consol

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

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Which one of the following statements concerning interest rates is correct?


A) Savers would prefer annual compounding over monthly compounding.
B) The effective annual rate decreases as the number of compounding periods per year increases.
C) The effective annual rate equals the annual percentage rate when interest is compounded annually.
D) Borrowers would prefer monthly compounding over annual compounding.
E) For any positive rate of interest,the effective annual rate will always exceed the annual percentage rate.

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

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-Trish receives $450 on the first of each month.Josh receives $450 on the last day of each month.Both Trish and Josh will receive payments for next four years.At a 9.5 percent discount rate,what is the difference in the present value of these two sets of payments? A) $141.80 B) $151.06 C) $154.30 D) $159.08 E) $162.50 -Trish receives $450 on the first of each month.Josh receives $450 on the last day of each month.Both Trish and Josh will receive payments for next four years.At a 9.5 percent discount rate,what is the difference in the present value of these two sets of payments?


A) $141.80
B) $151.06
C) $154.30
D) $159.08
E) $162.50

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

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-You need a 30-year,fixed-rate mortgage to buy a new home for $240,000.Your mortgage bank will lend you the money at a 7.5 percent APR for this 360-month loan,with interest compounded monthly.However,you can only afford monthly payments of $850,so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment.What will be the amount of the balloon payment if you are to keep your monthly payments at $850? A) $1,112,464 B) $1,113,316 C) $1,114,480 D) $1,115,840 E) $1,116,315 -You need a 30-year,fixed-rate mortgage to buy a new home for $240,000.Your mortgage bank will lend you the money at a 7.5 percent APR for this 360-month loan,with interest compounded monthly.However,you can only afford monthly payments of $850,so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment.What will be the amount of the balloon payment if you are to keep your monthly payments at $850?


A) $1,112,464
B) $1,113,316
C) $1,114,480
D) $1,115,840
E) $1,116,315

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

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Which one of the following compounding periods will yield the smallest present value given a stated future value and annual percentage rate?


A) annual
B) semi-annual
C) monthly
D) daily
E) continuous

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

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-The Design Team just decided to save $1,500 a month for the next 5 years as a safety net for recessionary periods.The money will be set aside in a separate savings account which pays 4.5 percent interest compounded monthly.The first deposit will be made today.What would today's deposit amount have to be if the firm opted for one lump sum deposit today that would yield the same amount of savings as the monthly deposits after 5 years? A) $80,459.07 B) $80,760.79 C) $81,068.18 D) $81,333.33 E) $81,548.20 -The Design Team just decided to save $1,500 a month for the next 5 years as a safety net for recessionary periods.The money will be set aside in a separate savings account which pays 4.5 percent interest compounded monthly.The first deposit will be made today.What would today's deposit amount have to be if the firm opted for one lump sum deposit today that would yield the same amount of savings as the monthly deposits after 5 years? A) $80,459.07 B) $80,760.79 C) $81,068.18 D) $81,333.33 E) $81,548.20 -The Design Team just decided to save $1,500 a month for the next 5 years as a safety net for recessionary periods.The money will be set aside in a separate savings account which pays 4.5 percent interest compounded monthly.The first deposit will be made today.What would today's deposit amount have to be if the firm opted for one lump sum deposit today that would yield the same amount of savings as the monthly deposits after 5 years?


A) $80,459.07
B) $80,760.79
C) $81,068.18
D) $81,333.33
E) $81,548.20

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

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-You are buying a previously owned car today at a price of $3,500.You are paying $300 down in cash and financing the balance for 36 months at 8.5 percent.What is the amount of each loan payment? A) $101.02 B) $112.23 C) $118.47 D) $121.60 E) $124.40 -You are buying a previously owned car today at a price of $3,500.You are paying $300 down in cash and financing the balance for 36 months at 8.5 percent.What is the amount of each loan payment?


A) $101.02
B) $112.23
C) $118.47
D) $121.60
E) $124.40

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

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-Your insurance agent is trying to sell you an annuity that costs $230,000 today.By buying this annuity,your agent promises that you will receive payments of $1,225 a month for the next 30 years.What is the rate of return on this investment? A) 3.75 percent B) 4.47 percent C) 4.93 percent D) 5.45 percent E) 5.67 percent -Your insurance agent is trying to sell you an annuity that costs $230,000 today.By buying this annuity,your agent promises that you will receive payments of $1,225 a month for the next 30 years.What is the rate of return on this investment? A) 3.75 percent B) 4.47 percent C) 4.93 percent D) 5.45 percent E) 5.67 percent -Your insurance agent is trying to sell you an annuity that costs $230,000 today.By buying this annuity,your agent promises that you will receive payments of $1,225 a month for the next 30 years.What is the rate of return on this investment?


A) 3.75 percent
B) 4.47 percent
C) 4.93 percent
D) 5.45 percent
E) 5.67 percent

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

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-You have some property for sale and have received two offers.The first offer is for $89,500 today in cash.The second offer is the payment of $35,000 today and an additional $70,000 two years from today.If the applicable discount rate is 11.5 percent,which offer should you accept and why? A) You should accept the $89,500 today because it has the higher net present value. B) You should accept the $89,500 today because it has the lower future value. C) You should accept the first offer as it has the greatest value to you. D) You should accept the second offer because it has the larger net present value. E) It does not matter which offer you accept as they are equally valuable. -You have some property for sale and have received two offers.The first offer is for $89,500 today in cash.The second offer is the payment of $35,000 today and an additional $70,000 two years from today.If the applicable discount rate is 11.5 percent,which offer should you accept and why?


A) You should accept the $89,500 today because it has the higher net present value.
B) You should accept the $89,500 today because it has the lower future value.
C) You should accept the first offer as it has the greatest value to you.
D) You should accept the second offer because it has the larger net present value.
E) It does not matter which offer you accept as they are equally valuable.

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

Correct Answer

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-You just paid $750,000 for an annuity that will pay you and your heirs $42,000 a year forever.What rate of return are you earning on this policy? A) 4.85 percent B) 5.10 percent C) 5.35 percent D) 5.60 percent E) 5.85 percent -You just paid $750,000 for an annuity that will pay you and your heirs $42,000 a year forever.What rate of return are you earning on this policy?


A) 4.85 percent
B) 5.10 percent
C) 5.35 percent
D) 5.60 percent
E) 5.85 percent

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

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-City Bank wants to appear competitive based on quoted loan rates and thus must offer a 7.75 percent annual percentage rate on its loans.What is the maximum rate the bank can actually earn based on the quoted rate? A) 8.06 percent B) 8.14 percent C) 8.21 percent D) 8.26 percent E) 8.58 percent -City Bank wants to appear competitive based on quoted loan rates and thus must offer a 7.75 percent annual percentage rate on its loans.What is the maximum rate the bank can actually earn based on the quoted rate?


A) 8.06 percent
B) 8.14 percent
C) 8.21 percent
D) 8.26 percent
E) 8.58 percent

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

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-This morning,you borrowed $9,500 at 8.9 percent annual interest.You are to repay the loan principal plus all of the loan interest in one lump sum four years from today.How much will you have to repay? A) $13,360.88 B) $13,808.13 C) $13,911.89 D) $14,006.08 E) $14,441.20 -This morning,you borrowed $9,500 at 8.9 percent annual interest.You are to repay the loan principal plus all of the loan interest in one lump sum four years from today.How much will you have to repay?


A) $13,360.88
B) $13,808.13
C) $13,911.89
D) $14,006.08
E) $14,441.20

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

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-What is the future value of $12,000 a year for 25 years at 12 percent interest? A) $878,406 B) $1,600,006 C) $1,711,414 D) $1,989,476 E) $2,021,223 -What is the future value of $12,000 a year for 25 years at 12 percent interest?


A) $878,406
B) $1,600,006
C) $1,711,414
D) $1,989,476
E) $2,021,223

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

Correct Answer

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Which one of the following terms is defined as a loan wherein the regular payments,including both interest and principal amounts,are insufficient to retire the entire loan amount,which then must be repaid in one lump sum?


A) amortized loan
B) continuing loan
C) balloon loan
D) remainder loan
E) interest-only loan

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

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What is the annual percentage rate on a loan with a stated rate of 2.75 percent per quarter?


A) 11.00 percent
B) 11.09 percent
C) 11.18 percent
D) 11.27 percent
E) 11.31 percent

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

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