Finance Chapter 5
Which one of the following has the highest effective annual rate? 6 percent compounded annually 6 percent compounded semiannually 6 percent compounded quarterly 6 percent compounded monthly All the other answers have the same effective annual rate.
6 percent compounded monthly
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? Ordinary annuity Annuity due Consol Ordinary perpetuity Perpetuity due
Annuity Due
Anna pays 1.5 percent interest monthly on her credit card account. When the interest rate on that debt is expressed as if it were compounded only annually, the rate would be referred to as the: annual percentage rate. compounded rate. quoted rate. stated rate. effective annual rate.
effective annual rate
The Jones Brothers recently established a trust fund that will provide annual scholarships of $12,000 indefinitely. These annual scholarships can best be described by which one of the following terms? Ordinary annuity Annuity due Amortized payment Perpetuity Continuation
Perpetuity
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? Perpetuity Annuity Consol Lump sum Factor
Annuity
Which one of the following statements is correct? The APR is equal to the EAR for a loan that charges interest monthly. The EAR is always greater than the APR. The APR on a monthly loan is equal to (1 + monthly interest rate)12 - 1. The APR is the best measure of the actual rate you are paying on a loan. The EAR, rather than the APR, should be used to compare both investment and loan options.
The EAR, rather than the APR, should be used to compare both investment and loan options.
The stated interest rate is the interest rate expressed: as if it were compounded one time per year. as the quoted rate compounded by 12 periods per year. in terms of the rate charged per day. in terms of the interest payment made each period. in terms of an effective rate.
in terms of the interest payment made each period.