FIN 3403 Chapter 6
your grandmother is gifting you $150 a month for 4 years while you attend college to earn your bachelor's degree. at a 4.8% discount rate, what are these payments worth to you on the day you enter college?
$6,539.14
a Canadian consol is best categorized as
a perpetuity
which of the following statements related to annuities and perpetuities is correct?
a perpetuity composed of $100 monthly payments is worth more than an annuity of $100 monthly payments given equal discount rates
you need $25,000 today and have decided to take out a loan at 7% for 5 years. which one of the following loans would be the least expensive? assume all loans require monthly payments and that interest is compounded on a monthly basis.
amortized loan with equal principal payments
which one of the following compounding periods will yield the lowest effective annual rate given a stated future value at year 5 and an annual percentage rate of 10%
annual
the interest rate that is most commonly quoted by a lender is referred to as which of the following?
annual percentage rate
your credit card charges you 1.5% interest per month. this rate when multiplied by 12 is called the
annual percentage rate
which one of the following terms is defined as a loan wherein the regular payments, including both interest and principal amounts, are insufficient to retire the entire loan amount, which then must be repaid in one lump sum
balloon loan
an interest rate on a loan that is compounded monthly but expressed as an annual rate would be an example of which of the following rates?
effective annual rate
amortized loans must have which one of these characteristics?
either equal or unequal principal payments over the life of the loan
an ordinary annuity is best defined by which of the following
equal payments at the end of regular intervals over a stated time period
which one of the following terms is used to describe a loan that calls for periodic interest payments and a lump sum principal payment
interest-only loan
an amortized loan
may have equal or increasing amounts applied to the principal from each loan payment
a loan where the borrower receives money today and repays a single lump sum on a future date is called a ________ loan
pure discount
the entire repayment of which one of the following loans is computed simply by computing one single future value
pure discount loans
which one of the following statements concerning interest rates is correct?
the effective annual rate equals the annual percentage rate when interest is compounded annually
which one of these statements related to growing annuities and perpetuities is correct?
the present value of a growing perpetuity will decrease if the discount rate is increased
how is the principal amount of an interest-only loan repaid
the principal is repaid in one lump sum at the end of the loan period
which one of the following statements correctly defines a time value of money relationship?
time and present value are inversely related, all else held constant
which one of the following accurately defines a perpetuity?
unending equal payments paid at equal time intervals
which one of the following statements related to loan interest rates is correct?
when comparing loans you should compare the effective annual rates
