Question 1

Which one of the following is an ordinary annuity, but not a perpetuity?

Accepted Answer

A)  $75 paid at the beginning of each monthly period for 50 years
B)  $15 paid at the end of each monthly period for an infinite period of time
C)  $40 paid quarterly for 5 years, starting today
D)  $50 paid every year for ten years, starting today
E)  $25 paid weekly for 1 year, starting one week from todayF) A) and C)
G) None of the above

Question 2

Today, you are borrowing $18,200 to purchase a car.What will be your monthly payment if the loan is for three years at 7.0 percent interest?

Accepted Answer

A)  $ 608.40
B)  $ 621.50
C)  $ 561.96
D)  $ 580.24
E)  $ 600.10F) A) and E)
G) B) and E)

Question 3

How much money does Yvonne need to have in her retirement savings account today if she wishes to withdraw $54,000 a year for 25 years? She expects to earn an average rate of return of 8.0 percent.

Accepted Answer

A)  $607,920.30
B)  $405,280.20
C)  $480,364.93
D)  $527,385.93
E)  $576,437.91F) B) and D)
G) A) and D)

Question 4

The Corner Bakery needs $86,000 today for remodeling.They have obtained a 2-year, pure-discount loan at an interest rate of 6.8 percent, compounded annually.How much must they repay in two years?

Accepted Answer

A)  $94,064.20
B)  $89,540.21
C)  $90,860.00
D)  $91,159.39
E)  $98,093.66F) B) and C)
G) A) and C)

Question 5

Round House Furniture offers credit to its customers at a rate of 1.15 percent per month.What is the effective annual rate of this credit offer?

Accepted Answer

A)  14.13 percent
B)  13.80 percent
C)  14.41 percent
D)  15.04 percent
E)  14.71 percentF) None of the above
G) All of the above

Question 6

Recently, you needed money and agreed to sell a car you had inherited at a price of $55,000, to be paid in monthly payments of $1,500 for 42 months.What interest rate did you charge for financing the sale?

Accepted Answer

A)  7.25 percent
B)  6.50 percent
C)  6.84 percent
D)  7.78 percent
E)  8.33 percentF) A) and B)
G) B) and D)

Question 7

Sporting Goods charges .85 percent interest per month.What rate of interest are its credit customers actually paying?

Accepted Answer

A)  11.00 percent
B)  11.92 percent
C)  10.26 percent
D)  9.31 percent
E)  10.69 percentF) D) and E)
G) A) and E)

Question 8

Bulk Purchases just purchased a new warehouse.To finance the purchase, the firm arranged for a 25-year mortgage for 80 percent of the $1,800,000 purchase price.The monthly payment is $10,800.What is the APR? The EAR?

Accepted Answer

A)  7.67 percent; 7.94 percent
B)  7.67 percent; 8.03 percent
C)  7.72 percent; 7.94 percent
D)  7.72 percent; 8.03 percent
E)  7.75 percent; 8.03 percentF) A) and B)
G) C) and D)

Question 9

A loan has an APR of 8.5 percent and an EAR of 8.5 percent.Given this, the loan must:

Accepted Answer

A)  have a one-year term.
B)  have a zero percent interest rate.
C)  charge interest annually.
D)  must be partially amortized with each loan payment.
E)  require the accrued interest be paid in full with each monthly payment.F) A) and E)
G) B) and D)

Question 10

The Rent-to-Own Store has a six-year, interest-only loan at 7.6 percent interest.The firm originally borrowed $115,000.How much will the firm pay in total interest over the life of the loan?

Accepted Answer

A)  $32,451.13
B)  $53,666.67
C)  $47,500.00
D)  $69,000.00
E)  $52,440.00F) A) and E)
G) B) and E)

Question 11

You want to buy a new sports car from Roy's Cars for $51,800.The contract is in the form of a 48-month annuity due at an APR of7.8 percent, compounded monthly.What would be your monthly payment?

Accepted Answer

A)  $1,251.60
B)  $1,109.29
C)  $1,245.70
D)  $1,152.98
E)  $1,084.32F) D) and E)
G) A) and E)

Question 12

A preferred stock offers a rate of return of 5.45 percent and sells for $78.20? What is the annual dividend amount?

Accepted Answer

A)  $4.26
B)  $4.09
C)  $3.53
D)  $4.50
E)  $3.87F) A) and C)
G) B) and E)

Question 13

Varian wants to have $500,000 in an investment account six years from now.The account will pay .58 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?

Accepted Answer

A)  $5,614.90
B)  $6,049.86
C)  $5,391.05
D)  $5,053.86
E)  $5,360.94F) B) and E)
G) None of the above

Question 14

You want to purchase a new condominium that costs $325,000.Your plan is to pay 20 percent down in cash and finance the balance over 15 years at 4.1 percent.What will be your monthly mortgage payment including principal and interest?

Accepted Answer

A)  $1,936.24
B)  $2,185.56
C)  $2,560.39
D)  $2,420.30
E)  $2,258.34F) A) and D)
G) B) and D)

Question 15

Which one of the following can be classified as an annuity but not as a perpetuity?

Accepted Answer

A)  Increasing monthly payments forever
B)  Increasing quarterly payments for six years
C)  Unequal payments each year for nine years
D)  Equal annual payments for life
E)  Equal weekly payments foreverF) B) and C)
G) A) and C)

Question 16

The stated interest rate is the interest rate expressed:

Accepted Answer

A)  as if it were compounded one time per year.
B)  as the quoted rate compounded by 12 periods per year.
C)  in terms of the rate charged per day.
D)  in terms of the interest payment made each period.
E)  in terms of an effective rate.F) A) and B)
G) A) and C)

Question 17

Which statement is true?

Accepted Answer

A)  All else equal, an ordinary annuity is more valuable than an annuity due.
B)  All else equal, a decrease in the number of payments increases the future value of an annuity due.
C)  An annuity with payments at the beginning of each period is called an ordinary annuity.
D)  All else equal, an increase in the discount rate decreases the present value and increases the future value of an annuity.
E)  All else equal, an increase in the number of annuity payments decreases the present value and increases the future value of an annuity.F) A) and B)
G) B) and E)

Question 18

Jake owes $3,990 on a credit card with an APR of 13.9 percent.How much more will it cost him to pay off this balance if he makes monthly payments of $50 rather than $60? Assume he does not charge any further purchases.

Accepted Answer

A)  $2,409
B)  $2,811
C)  $1,648
D)  $1,018
E)  $3,545F) None of the above
G) B) and D)

Question 19

What is the effective annual rate of 8.25 percent compounded quarterly?

Accepted Answer

A)  8.25 percent
B)  8.49 percent
C)  8.38 percent
D)  8.51 percent
E)  8.56 percentF) C) and D)
G) A) and B)

Question 20

You want to borrow $3,600 for 36 months and can afford monthly payments of $110, but no more.Assuming monthly compounding, what is the highest APR rate you can afford?

Accepted Answer

A)  5.45 percent
B)  5.84 percent
C)  6.29 percent
D)  5.78 percent
E)  6.68 percentF) B) and E)
G) A) and D)

Exam 5: Discounted Cash Flow Valuation

You want to buy a new sports car from Roy's Cars for $51,800.The contract is in the form of a 48-month annuity due at an APR of7.8 percent, compounded monthly.What would be your monthly payment?

Correct AnswerverifiedShow Answer

Which one of the following is an ordinary annuity, but not a perpetuity?

Correct AnswerverifiedShow Answer

Round House Furniture offers credit to its customers at a rate of 1.15 percent per month.What is the effective annual rate of this credit offer?

Correct AnswerverifiedShow Answer

Bulk Purchases just purchased a new warehouse.To finance the purchase, the firm arranged for a 25-year mortgage for 80 percent of the $1,800,000 purchase price.The monthly payment is $10,800.What is the APR? The EAR?

Correct AnswerverifiedShow Answer

What is the effective annual rate of 8.25 percent compounded quarterly?

Correct AnswerverifiedShow Answer

Jake owes $3,990 on a credit card with an APR of 13.9 percent.How much more will it cost him to pay off this balance if he makes monthly payments of $50 rather than $60? Assume he does not charge any further purchases.

Correct AnswerverifiedShow Answer

The stated interest rate is the interest rate expressed:

Correct AnswerverifiedShow Answer

How much money does Yvonne need to have in her retirement savings account today if she wishes to withdraw $54,000 a year for 25 years? She expects to earn an average rate of return of 8.0 percent.

Correct AnswerverifiedShow Answer

Varian wants to have $500,000 in an investment account six years from now.The account will pay .58 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?

Correct AnswerverifiedShow Answer

Recently, you needed money and agreed to sell a car you had inherited at a price of $55,000, to be paid in monthly payments of $1,500 for 42 months.What interest rate did you charge for financing the sale?

Correct AnswerverifiedShow Answer

Which statement is true?

Correct AnswerverifiedShow Answer

A loan has an APR of 8.5 percent and an EAR of 8.5 percent.Given this, the loan must:

Correct AnswerverifiedShow Answer

Today, you are borrowing $18,200 to purchase a car.What will be your monthly payment if the loan is for three years at 7.0 percent interest?

Correct AnswerverifiedShow Answer

Sporting Goods charges .85 percent interest per month.What rate of interest are its credit customers actually paying?

Correct AnswerverifiedShow Answer

You want to purchase a new condominium that costs $325,000.Your plan is to pay 20 percent down in cash and finance the balance over 15 years at 4.1 percent.What will be your monthly mortgage payment including principal and interest?

Correct AnswerverifiedShow Answer

Which one of the following can be classified as an annuity but not as a perpetuity?

Correct AnswerverifiedShow Answer

The Corner Bakery needs $86,000 today for remodeling.They have obtained a 2-year, pure-discount loan at an interest rate of 6.8 percent, compounded annually.How much must they repay in two years?

Correct AnswerverifiedShow Answer

A preferred stock offers a rate of return of 5.45 percent and sells for $78.20? What is the annual dividend amount?

Correct AnswerverifiedShow Answer

The Rent-to-Own Store has a six-year, interest-only loan at 7.6 percent interest.The firm originally borrowed $115,000.How much will the firm pay in total interest over the life of the loan?

Correct AnswerverifiedShow Answer

You want to borrow $3,600 for 36 months and can afford monthly payments of $110, but no more.Assuming monthly compounding, what is the highest APR rate you can afford?

Correct AnswerverifiedShow Answer

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