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Janice plans to save $75 a month, starting today, for 20 years. Kate plans to save $80 a month for 20 years, starting one month from today. Both Janice and Kate expect to earn an average return of 5.5 percent on their savings. At the end of the 20 years, Kate will have approximately _____ more than Janice.


A) $2,028.39
B) $2,066.67
C) $2,091.50
D) $2,178.14
E) $2,189.12

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

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Your parents loaned you money at 0.25 percent interest per month. What is the APR of this loan?


A) 2.97 percent
B) 3.00 percent
C) 3.04 percent
D) 4.00 percent
E) 4.07 percent

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

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A loan that compounds interest monthly has an EAR of 15.40 percent. What is the APR?


A) 14.41 percent
B) 14.58 percent
C) 14.87 percent
D) 14.99 percent
E) 15.02 percent

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

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


A) $75 paid at the beginning of each month 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 five years, starting today
D) $50 paid every year for ten years, starting today
E) $25 paid weekly for one year, starting one week from today

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

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Which one of the following can NOT be computed?


A) Future value of an ordinary annuity
B) Future value of a perpetuity
C) Present value of a perpetuity
D) Present value of an annuity due
E) Present value of an ordinary annuity

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

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You want to purchase a new condominium which costs $329,000. Your plan is to pay 20 percent down in cash and finance the balance over 25 years at 6.25 percent. What will be your monthly mortgage payment?


A) $1,736.25
B) $1,833.33
C) $1,908.16
D) $2,221.43
E) $2,406.11

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

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Today, you are borrowing $13,800 to purchase a car. What will be your monthly payment amount if the loan is for 4 years at 7.5 percent interest?


A) $298.40
B) $321.150
C) $333.67
D) $380.24
E) $400.10

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

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Your grandfather started his own business 52 years ago. He opened a savings account at the end of his third month of business and contributed $x. Every three months since then, he faithfully saved another $x. His savings account has earned an average rate of 4.5 percent annually. Today, his account is valued at $364,209.11. How much did your grandfather save every 3 months?


A) $425.15
B) $428.67
C) $431.09
D) $443.13
E) $462.25

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

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


A) Increasing monthly payments forever
B) Increasing quarterly payments for 6 years
C) Unequal payments each year for 9 years
D) Equal annual payments for life
E) Equal weekly payments forever

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

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Which one of the following statements is correct?


A) The APR is equal to the EAR for a loan that charges interest monthly.
B) The EAR is always greater than the APR.
C) The APR on a monthly loan is equal to (1 + monthly interest rate) 12 - 1.
D) The APR is the best measure of the actual rate you are paying on a loan.
E) The EAR, rather than the APR, should be used to compare both investment and loan options.

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

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Capstone Crowns is considering a project that will produce cash inflows of $11,000 in year one, $24,000 in year two, and $36,000 in year three. What is the present value of these cash inflows if the company assigns the project a discount rate of 14 percent?


A) $40,331.89
B) $46,564.28
C) $52,415.32
D) $54,868.15
E) $60,978.35

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

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Western States Life Insurance offers a perpetuity that pays annual payments of $10,000. This contract sells for $275,000 today. What is the interest rate?


A) 3.64 percent
B) 3.87 percent
C) 4.10 percent
D) 4.21 percent
E) 4.39 percent

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

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Anne plans to save $40 a week for the next 5 years. She expects to earn 3 percent for the first 2 years and 5 percent for the last 3 years. How much will her savings be worth at the end of the 5 years?


A) $10,215.60
B) $10,684.29
C) $10,983.58
D) $11,014.88
E) $11,708.15

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

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A local magazine is offering a $2,500 grand prize to one lucky winner. $1,000 will be paid on the day of the drawing. The remaining $1,500 will be paid in three annual payments of $500 each, starting one year after the drawing. How much would this prize be worth to you if you can earn 9 percent on your money?


A) $2,048.18
B) $2,164.29
C) $2,265.65
D) $2,450.14
E) $2,545.54

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

Correct Answer

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You just borrowed $3,000 from your bank and agreed to repay the interest on an annual basis and the principal at the end of 3 years. What type of loan did you obtain?


A) Interest-only
B) Amortized
C) Perpetual
D) Pure discount
E) Lump sum

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

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The Food Store is planning a major expansion for 4 years from today. In preparation for this, the company is setting aside $35,000 each quarter, starting today, for the next 4 years. How much money will the firm have when it is ready to expand if it can earn an average of 6.25 percent on its savings?


A) $528,409.29
B) $540,288.16
C) $610,411.20
D) $640,516.63
E) $662,009.14

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

Correct Answer

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You are comparing three investments, all of which pay $100 a month and have an 8 percent interest rate. 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) B) and E)

Correct Answer

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You will receive annual payments of $2,400 at the end of each year for 15 years. The first payment will be received in year 6. What is the present value of these payments if the discount rate is 7 percent?


A) $11,465.20
B) $12,018.52
C) $13,299.80
D) $15,585.16
E) $16,856.60

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

Correct Answer

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The Furniture Showroom offers credit to its customers at a rate of 1.4 percent per month. What is the effective annual rate of this credit offer?


A) 15.97 percent
B) 16.52 percent
C) 16.80 percent
D) 17.34 percent
E) 18.16 percent

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

Correct Answer

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Taylor Farms is borrowing $75,000 for 3 years at an APR of 9 percent. The loan calls for the principal balance to be reduced by equal amounts over the life of the loan. Interest is to be paid in full each year. The payments are to be made annually at the end of each year. How much will Taylor Farms pay in interest over the life of this loan?


A) $12,311.67
B) $12,484.90
C) $12,840.00
D) $13,500.00
E) $13,887.32

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

Correct Answer

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