FINAN 3040 HW 5A

An account boasts an effective annual rate of 14 percent with weekly compounding. What is the account's APR? A) 13.97 percent B) 14.25 percent C) 13.12 percent D) 12.88 percent

C) 13.12 percent

If the effective annual rate of interest is known to be 16.08 percent on debt that has quarterly payments, what is the annual percentage rate? A) 4.02 percent B) 10.02 percent C) 15.19 percent D) 14.50 percent

C) 15.19 percent

If inflation in Wonderland was 3 percent per month in 2019, what was the annual rate of inflation? A) 40.09 percent B) 36.00 percent C) 42.58 percent D) 41.27 percent

C) 42.58 percent

If borrower promises to pay you $1,900 nine years from now in return for loan of $1,000 today, what effective annual interest rate is being offered if interest is compounded annually? A) 9.00 percent B) 5.26 percent C) 7.39 percent D) 10.00 percent

C) 7.39 percent

What is the minimum nominal rate of return that you should accept if you require 4 percent real rate of return and the rate of inflation is expected to average 3.5 percent during the investment period? A) 7.36 percent B) 8.01 percent C) 7.64 percent D) 7.50 percent

C) 7.64 percent

Real interest rates: A) always exceed inflation rates. B) can decline to zero but no lower. C) can be negative, zero, or positive. D) traditionally exceed nominal rates.

C) can be negative, zero, or positive.

An interest rate that has been annualized using compound interest is termed the: A) discount factor. B) annual percentage rate. C) effective annual interest rate. D) discounted interest rate.

C) effective annual interest rate.

After reading the fine print in your credit card agreement, you find that the "low" interest rate is actually an 18 percent APR, or 1.5 percent per month. What is the effective annual rate? A) 19.56 percent B) 18.82 percent C) 19.41 percent D) 18.47 percent

A) 19.56 percent

What is the expected real rate of interest for an account that offers 12 percent nominal rate of return when the rate of inflation is 6 percent annually? A) 5.66 percent B) 5.00 percent C) 6.00 percent D) 9.46 percent

A) 5.66 percent

Would a depositor prefer an APR of 8 percent with monthly compounding or an APR of 8.5 percent with semiannual compounding? A) 8.5 percent with semiannual compounding B) The depositor would be indifferent. C) 8.0 percent with monthly compounding D) The time period must be known to select the preferred account.

A) 8.5 percent with semiannual compounding

What is the effective annual interest rate on 9 percent APR automobile loan that has monthly payments? A) 9.38 percent B) 9.00 percent C) 10.94 percent D) 9.81 percent

A) 9.38 percent

What happens over time to the real cost of purchasing home if the mortgage payments are fixed in nominal terms and inflation is in existence? A) The real cost is decreasing. B) The real cost is constant. C) The real cost is increasing. D) The price index must be known to answer this question.

A) The real cost is decreasing.

Other things being equal, the more frequent the compounding period, the: A) higher the effective annual interest rate. B) lower the annual percentage rate. C) lower the effective annual interest rate. D) higher the annual percentage rate.

A) higher the effective annual interest rate

Suppose you invested $100,000 in an account for 20 years that paid 2 percent compound interest every quarter. To have the same ending balance after 30 years, what annual rate of simple interest must you have earned? A) 13.89 percent B) 12.92 percent C) 12.04 percent D) 11.15 percent

B) 12.92 percent

A credit card account that charges interest at the rate of 1.25 percent per month would have an annually compounded rate of ________ and an APR of ________. A) 15.00 percent; 14.55 percent B) 16.08 percent; 15.00 percent C) 14.55 percent; 16.08 percent D) 12.68 percent; 15.00 percent

B) 16.08 percent; 15.00 percent

What is the APR on loan that charges interest at the rate of 1.4 percent per month? A) 14.00 percent B) 16.80 percent C) 10.20 percent D) 18.16 percent

B) 16.80 percent

What APR is being earned on deposit of $5,000 made 10 years ago today if the deposit is worth $9,848.21 today? The deposit pays interest semiannually. A) 7.12 percent B) 6.89 percent C) 3.56 percent D) 6.76 percent

B) 6.89 percent

The APR on loan must be equal to the effective annual rate when: A) the loan is for less than one year. B) compounding occurs annually. C) the loan is for more than one year. D) compounding occurs monthly.

B) compounding occurs annually.

****An investment of $100 pays interest of 2.5 percent per quarter. What will be the value of this investment at the end of 3 years? A) $133.10 B) $313.84 C) $107.69 D) $134.49

D) $134.49

What is the annually compounded rate of interest on an account with an APR of 10 percent and monthly compounding? A) 11.05 percent B) 10.52 percent C) 10.00 percent D) 10.47 percent

D) 10.47 percent

Would you prefer savings account that paid 7 percent interest compounded quarterly, 6.8 percent compounded monthly, 7.2 percent compounded weekly, or an account that paid 7.5 percent with annual compounding? A) 7.2 percent compounded weekly B) 6.8 percent compounded monthly C) 7.0 percent compounded quarterly D) 7.5 percent compounded annually

D) 7.5 percent compounded annually

What is the relationship between an annually compounded rate and the annual percentage rate (APR) which is calculated for truth-in-lending laws for loan requiring monthly payments? A) The APR equals the annually compounded rate. B) The APR is higher than the annually compounded rate. C) The answer depends on the interest rate. D) The APR is lower than the annually compounded rate.

D) The APR is lower than the annually compounded rate.

If interest is paid n times per year, then the per-period interest rate equals the: A) compound interest rate times n. B) effective annual rate divided by n. C) effective annual rate. D) annual percentage rate (APR) divided by n.

D) annual percentage rate (APR) divided by n.

If interest is compounded semi-annually rather than annually, then: A) future values and present values will both be higher. B) futures values and present values will both be lower. C) future values will be lower and present values will be higher. D) future values will be higher and present values will be lower.

D) future values will be higher and present values will be lower.

The concept of compound interest refers to: A) earning interest on the original investment. B) investing for multiyear period of time. C) determining the APR of the investment. D) payment of interest on previously earned interest.

D) payment of interest on previously earned interest.