Quiz 5

What is the effective annual rate of 10 percent compounded semiannually?

10.25 percent

Kurt wants to have $25,000 in an investment account four years from now. The account will pay 0.2 percent interest per month. If he saves money every month, starting one month from now, how much will he have to save each month to reach his goal?

$496.75

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

Timing of the annuity payments

Christie is buying a new car today and is paying a $500 cash down payment. She will finance the balance at 7.25 percent interest. Her loan requires 36 equal monthly payments of $450 each with the first payment due 30 days from today. Which one of the following statements is correct concerning this purchase?

To compute the initial loan amount, you must use a monthly interest rate

Webster Mining is considering the purchase of a new sorting machine. The quote consists of a quarterly payment of $29,600 for seven years at 8 percent interest. What is the purchase price of the equipment?

$629,925.66

PayDay Loans wants to earn an effective annual return on its consumer loans of 18 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required by law to report to potential borrowers?

16.56 percent

West Coast Builders is offering preferred stock for sale with a 6.75 percent rate of return. What is the amount of the annual dividend on this stock if the current market price per share is $83.87?

C = 0.0675 × $83.87 = $5.66

Which of the following will increase the present value of an annuity, all else held constant?I. Increase in the number of paymentsII. Increase in the interest rateIII. Decrease in the interest rateIV. Decrease in the payment amount

I and III only

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

A credit card has an annual percentage rate of 12.9 percent and charges interest monthly. The effective annual rate on this account:

will be greater than 12.9 percent

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

Jake owes $3,400 on his credit card. He is not charging any additional purchases because he wants to get this debt paid in full. The card has an APR of 13.9 percent. How much longer will it take him to pay off this balance if he makes monthly payments of $50 rather than $60?

41.79 months

A new financial services company just opened in your town. To attract customers, it is offering a "9-11" loan special. The company will lend $9 today in exchange for a payment of $11 one year from today. What is the APR on this loan?

FV = $9 × (1 + r) 1 = $11; r = 22.22 percent