Question 1

Suenette plans to save $600 at the end of Year 1,$800 at the end of Year 2,and $1,000 at the end of Year 3.If she earns 3.4 percent on her savings,how much money will she have saved at the end of Year 3?

Accepted Answer

A)  $2,200.00
B)  $2,238.47
C)  $2,468.69
D)  $2,309.16
E)  $2,402.19F) All of the above
G) A) and D)

Question 2

What is the effective annual rate of 14.9 percent compounded quarterly?

Accepted Answer

A)  14.48 percent
B)  14.67 percent
C)  15.23 percent
D)  15.54 percent
E)  15.75 percentF) A) and B)
G) A) and E)

Question 3

Katie's Dinor spent $113,800 to refurbish its current facility.The firm borrowed 65 percent of the refurbishment cost at 6.82 percent interest for six years.What is the amount of each monthly payment?

Accepted Answer

A)  $1,108.91
B)  $1,282.16
C)  $1,333.33
D)  $1,254.73
E)  $1,087.06F) A) and D)
G) A) and C)

Question 4

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?

Accepted Answer

A)  Ordinary annuity
B)  Annuity due
C)  Consol
D)  Ordinary perpetuity
E)  Perpetuity dueF) A) and E)
G) All of the above

Question 5

Best's Fried Chicken just took out an interest-only loan of $50,000 for three years with an interest rate of 8.15 percent.Payments are to be made at the end of each year.What is the amount of the payment that will be due at the end of Year 3?

Accepted Answer

A)  $19,454.21
B)  $20,166.67
C)  $50,000.00
D)  $54,075.00
E)  $52,824.60F) C) and D)
G) A) and E)

Question 6

Charlene can afford car payments of $185 a month for 48 months.If the interest rate is 5.65 percent,how much money can she afford to borrow?

Accepted Answer

A)  $7,931.44
B)  $7,734.95
C)  $7,899.60
D)  $8,022.15
E)  $8,422.09F) None of the above
G) C) and D)

Question 7

An amortized,3-year loan has annual payments and an effective annual rate of 14.56 percent.What is the APR?

Accepted Answer

A)  13.09 percent
B)  13.46 percent
C)  13.90 percent
D)  14.56 percent
E)  14.82 percentF) A) and D)
G) B) and E)

Question 8

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?

Accepted Answer

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

Question 9

Uptown Insurance offers an annuity due with semiannual payments for 25 years at 6 percent interest.The annuity costs $200,000 today.What is the amount of each annuity payment?

Accepted Answer

A)  $7,546.70
B)  $7,600.00
C)  $7,773.10
D)  $7,800.00
E)  $7,856.25F) A) and D)
G) A) and B)

Question 10

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?

Accepted Answer

A)  $17,204
B)  $16,048
C)  $23,911
D)  $20,686
E)  $19,542F) All of the above
G) A) and D)

Question 11

Today,you are borrowing $7,800 to purchase a car.What will be your monthly payment if the loan is for four years at 6.45 percent interest?

Accepted Answer

A)  $208.40
B)  $221.50
C)  $184.80
D)  $180.24
E)  $200.10F) None of the above
G) All of the above

Question 12

JK Industries just signed a sales contract with a new customer.JK will receive annual payments in the amount of $62,000,$108,000,$135,000,and $150,000 at the end of Years 1 to 4,respectively.What is this contract worth at the end of Year 4 if the firm earns 4.3 percent on its savings?

Accepted Answer

A)  $497,425.35
B)  $402,311.19
C)  $466,118.00
D)  $485,271.13
E)  $478,639.54F) D) and E)
G) C) and D)

Question 13

Which one of the following features distinguishes an ordinary annuity from an annuity due?

Accepted Answer

A)  Number of equal payments
B)  Amount of each payment
C)  Frequency of the payments
D)  Annuity interest rate
E)  Timing of the annuity paymentsF) B) and C)
G) A) and D)

Question 14

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?

Accepted Answer

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

Question 15

The Egg House just borrowed $660,000 to build a new restaurant.The loan terms call for equal annual payments at the end of each year.The loan is for 15 years at an APR of 8.35 percent.How much of the first annual payment will be used to reduce the principal balance?

Accepted Answer

A)  $21,311.62
B)  $23,653.18
C)  $18,211.08
D)  $48,911.08
E)  $51,420.90F) A) and C)
G) A) and E)

Question 16

Jeffries & Sons is borrowing $95,000 for four years at an APR of 7.05 percent.The principal is to be repaid in equal annual payments over the life of the loan with interest paid annually.Payments will be made at the end of each year.What is the total payment due for Year 3 of this loan?

Accepted Answer

A)  $28,224.90
B)  $27,098.75
C)  $25,424.38
D)  $30,447.50
E)  $28,773.13F) A) and C)
G) A) and E)

Question 17

You want to purchase a new condominium that costs $287,500.Your plan is to pay 25 percent down in cash and finance the balance over 15 years at 3.75 percent.What will be your monthly mortgage payment including principal and interest?

Accepted Answer

A)  $1,568.07
B)  $1,333.33
C)  $1,708.16
D)  $1,221.43
E)  $1,406.11F) A) and B)
G) B) and D)

Question 18

A perpetuity in Canada is frequently referred to as:

Accepted Answer

A)  a consul.
B)  an infinity.
C)  forever cash.
D)  a dowry.
E)  a forevermore.F) B) and D)
G) A) and D)

Question 19

Assume all else is equal.When comparing savings accounts,you should select the account that has the:

Accepted Answer

A)  lowest annual percentage rate.
B)  highest annual percent rate.
C)  highest stated rate.
D)  lowest effective annual rate.
E)  highest effective annual rate.F) A) and E)
G) A) and C)

Question 20

Which one of the following is the annuity present value formula?

Accepted Answer

A)  C ×({1 - [1/(1 + r) t]}/r) 
B)  C ×({1 - [1/(1 + r) t]} -r) 
C)  C ×({1 - [r/(1 + r) t]}/r) 
D)  C ×({1 - [1/(1 ×r) t]} ×r) 
E)  C ×({1 - [r/(1 ×r) t]} ×r) F) B) and E)
G) None of the above

Exam 5: Discounted Cash Flow Valuation

Today,you are borrowing $7,800 to purchase a car.What will be your monthly payment if the loan is for four years at 6.45 percent interest?

Correct AnswerverifiedShow Answer

Uptown Insurance offers an annuity due with semiannual payments for 25 years at 6 percent interest.The annuity costs $200,000 today.What is the amount of each annuity payment?

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Which one of the following features distinguishes an ordinary annuity from an annuity due?

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What is the effective annual rate of 14.9 percent compounded quarterly?

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An amortized,3-year loan has annual payments and an effective annual rate of 14.56 percent.What is the APR?

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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?

Correct AnswerverifiedShow Answer

You want to purchase a new condominium that costs $287,500.Your plan is to pay 25 percent down in cash and finance the balance over 15 years at 3.75 percent.What will be your monthly mortgage payment including principal and interest?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Which one of the following is the annuity present value formula?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

A perpetuity in Canada is frequently referred to as:

Correct AnswerverifiedShow Answer

The Egg House just borrowed $660,000 to build a new restaurant.The loan terms call for equal annual payments at the end of each year.The loan is for 15 years at an APR of 8.35 percent.How much of the first annual payment will be used to reduce the principal balance?

Correct AnswerverifiedShow Answer

Jeffries & Sons is borrowing $95,000 for four years at an APR of 7.05 percent.The principal is to be repaid in equal annual payments over the life of the loan with interest paid annually.Payments will be made at the end of each year.What is the total payment due for Year 3 of this loan?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Charlene can afford car payments of $185 a month for 48 months.If the interest rate is 5.65 percent,how much money can she afford to borrow?

Correct AnswerverifiedShow Answer

Assume all else is equal.When comparing savings accounts,you should select the account that has the:

Correct AnswerverifiedShow Answer

Katie's Dinor spent $113,800 to refurbish its current facility.The firm borrowed 65 percent of the refurbishment cost at 6.82 percent interest for six years.What is the amount of each monthly payment?

Correct AnswerverifiedShow Answer

Best's Fried Chicken just took out an interest-only loan of $50,000 for three years with an interest rate of 8.15 percent.Payments are to be made at the end of each year.What is the amount of the payment that will be due at the end of Year 3?

Correct AnswerverifiedShow Answer

JK Industries just signed a sales contract with a new customer.JK will receive annual payments in the amount of $62,000,$108,000,$135,000,and $150,000 at the end of Years 1 to 4,respectively.What is this contract worth at the end of Year 4 if the firm earns 4.3 percent on its savings?

Correct AnswerverifiedShow Answer

Suenette plans to save $600 at the end of Year 1,$800 at the end of Year 2,and $1,000 at the end of Year 3.If she earns 3.4 percent on her savings,how much money will she have saved at the end of Year 3?

Correct AnswerverifiedShow Answer

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