Chapter 4&5 Quiz Review Flashcards
A loan has an APR of 8.5 percent. Given this, the loan must:
A) Charge interest annually.
B) Must be partially amortized with each loan payment.
C) Require the accrued interest be paid in full with each monthly payment.
D) Have a one-year term.
E) Have a zero percent interest rate.
Charge interest annually.
Which one of the following has the highest effective annual rate?
A) 6 percent compounded daily.
B) 6 percent compounded semiannually.
C) 6 percent compounded annually.
D) 6 percent compounded quarterly.
E) 6 percent compounded every 2 years.
6 percent compounded daily.
Travis is buying a car and will finance it with a loan that requires monthly payments of $265 for the next four years. His car payments can be described by which one of the following terms?
A) Consol
B) Present value
C) Perpetuity
D) Lump sum
E) Annuity
Annuity
Kendall is investing $3,333 today at 3 percent annual interest for three years. Which one of the following will increase the future value of that amount?
A) Increasing the interest rate
B) Paying simple interest rather than compound interest
C) Shortening the investment time period
D) Paying interest only on the principal amount
E) Paying interest only at the end of the investment period rather than throughout the investment period
Increasing the interest rate
If the future value of annuity A is greater than the future value of annuity B, then the present value of annuity A must also be greater than the present value of annuity B. (Assuming these two annuities have the same length and interest rate) True or False?
True
Jenny needs to borrow $5,500 for four years. The loan will be repaid in one lump sum at the end of the loan term. Which one of the following interest rates is best for Jenny?
A) 6.5 percent simple interest
B) 6.80 percent interest, compounded annually
C) 6.5 percent interest, compounded annually
D) 6.6 percent simple interest
E) 6.75 percent interest, compounded annually
6.5 percent simple interest
By definition, a bank that pays simple interest on a savings account will pay interest:
A) On interest.
B) On both the principal amount and the reinvested interest.
C) Only at the beginning of the investment period.
D) Only if all previous interest payments are reinvested.
E) Only on the principal amount originally invested.
Only on the principal amount originally invested.
Marcos is investing $5 today at 7 percent interest so he can have $35 later. This $35 is referred to as the:
A) Present value.
B) True value.
C) Future value.
D) Discounted value.
E) Complex value.
Future value.
You are comparing two annuities. Annuity A pays $100 at the end of each month for 10 years. Annuity B pays $100 at the beginning of each month for 10 years. The rate of return on both annuities is 8 percent. Which one of the following statements is correct given this information?
A) Annuity A has a higher future value but a lower present value than Annuity B.
B) The present value of Annuity A is equal to the present value of Annuity B.
C) The future value of Annuity A is greater than the future value of Annuity B.
D) Annuity B will pay one more payment than Annuity A will.
C) Annuity B has both a higher present value and a higher future value than Annuity A.
Annuity B has both a higher present value and a higher future value than Annuity A.
Given an interest rate of zero percent, the future value of a lump sum invested today will always:
A) Be infinite in value.
B) Remain constant, regardless of the investment time period.
C) Decrease if the investment time period is shortened.
D) Be equal to $0.
E) Decrease if the investment time period is lengthened.
Remain constant, regardless of the investment time period.
