Quiz 4

The phrase "price to rent money" is sometimes used to refer to ________.

interest rates

If you take out a loan from a bank, you will be charged ________.

for both principal and interest

What is the EAR if the APR is 10.52% and compounding is daily?

Slightly above 11.09%

What is the EAR if the APR is 5% and compounding is quarterly?

Slightly above 5.09%

Which of the statements below is FALSE?

The prices of goods and services tend to decrease over time because of inflation.

The "Truth in Savings Law" requires banks to advertise their rates on investments such as CDs and savings accounts as annual percentage yields (APY).

True

You put 20% down on a home with a purchase price of $250,000. The down payment is thus $50,000, leaving a balance owed of $200,000. The bank will loan the remaining balance at 3.91% APR. You will make annual payments with a 30-year payment schedule. What is the annual annuity payment under this schedule?

$11,439.96

Rodney invests $2,400 today, compounded monthly, with an annual interest rate of 6.25%. What is Rodney's investment worth in one year?

$2,554.37

The real rate is 1.25% and inflation is 5.25%. What is the approximate nominal rate?

6.50%

Which of the following statements is TRUE?

By INCREASING the number of payments per year, you REDUCE your total cash outflow but INCREASE your effective borrowing rate.

To determine the interest paid each compounding period, we take the advertised annual percentage rate and simply divide it by the ________ to get the appropriate periodic interest rate.

number of compounding periods per year

The number of periods for a consumer loan (n) is equal to the ________.

number of years times compounding periods per year

APRs must be converted to the appropriate periodic rates when compounding is ________.

more frequent than once a year

Assume you just bought a new car and now have a car loan to repay. The amount of the principal is $22,000, the loan is at 5.9% APR, and the monthly payments are spread out over 6 years. What is the loan payment? Use a calculator to determine your answer.

$363.57

Kenna invests $5,000 today, compounded monthly, with an annual interest rate of 8.52%. What amount of interest will she earn in one year?

$443.04