Finance test 2

Bill just financed a used car through his credit union. His loan requires payments of $275 a month for five years. Assuming that all payments are paid on time, his last payment will pay off the loan in full. What type of loan does Bill have?

amortized

All else held constant, the future value of a lump sum investment will decrease if the:

amount of the lump sum investment increases

a 30-year home mortgage is a classic example of

an ordinary annuity

Lee pays 1 percent per month interest on his credit card account. When his monthly rate is multiplied by 12, the resulting answer is referred to as the:

annual percentage rate

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?

annuity due

Annuities are due

at the beginning of each time period

Which one of the following is the quoted price of a bond?

clean price

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:

effective annual rate

A real rate of return is defined as a rate that has been adjusted for which one of the following?

inflation

Changes in interest rates affect bond prices. Which one of the following compensates bond investors for this risk?

interest rate risk premium

When a bond's yield to maturity is less than the bond's coupon rate, the bond:

is selling at a premium

Which one of the following bonds is the most sensitive to changes in market interest rates?

10 year, zero coupon

The price at which a dealer will purchase a bond is called the _____ price

bid

Travis recently purchased a callable bond. However, that bond cannot be currently redeemed by the issuer. Thus, the bond must currently be

call protected

. Lester had $6,270 in his savings account at the beginning of this year. This amount includes both the $6,000 he originally invested at the beginning of last year plus the $270 he earned in interest last year. This year, Lester earned a total of $282.15 in interest even though the interest rate on the account remained constant. This $282.15 is best described as

compound interest

A bond's annual interest divided by its face value is referred to as the

coupon rate

The current yield on a bond is equal to the annual interest divided by the

current market value

Lucas expects to receive a sales bonus of $7,500 one year from now. The process of determining how much that bonus is worth today is called:

discounting

The stated interest rate is the interest rate expressed

in terms of the interest payment made each period

ceteris plaribus, the future value of an annuity will increase if you

increase the time period

A call provision grants the bond issuer the:

option of repurchasing the bonds prior to maturity at a pre-specified price