annuity due. | |
amortized cash flow stream. | |
amortization table. | |
perpetuity. | |
indemnity. |
The interest rate charged per period multiplied by the number of periods per year is called the _____ rate.
effective annual | |||
daily interest | |||
annual percentage | |||
periodic interest | |||
compound interest | |||
You are comparing two investment options. The cost to invest in either option is the same today. Both options will provide you with $20,000 of income. Option A pays five annual payments starting with $8,000 the first year followed by four annual payments of $3,000 each. Option B pays five annual payments of $4,000 each. Which one of the following statements is correct given these two investment options? | |||
Option B has a higher present value than option A given a positive rate of return. | |||
Option A is preferable because it is an annuity due. | |||
Both options are of equal value given that they both provide $20,000 of income. | |||
Option A is the better choice of the two given any positive rate of return. | |||
Option B has a lower future value at year 5 than option A given a zero rate of return. | |||
What is the future value of the following cash flows at the end of year 3 if the interest rate is 7.25%? The cash flows occur at the end of each year. Year 1 =$6,800 Year 2 =$2,100 Year 3 =$0 | |||
$10,314.00 | |||
$8,758.04 | |||
$10,804.36 | |||
$8,806.39 | |||
$10,073.99 | |||
FV = ($6,800 x (1.0725)2) + ($2,100 x (1.0725)1) + $0; FV = $10,073.99 You are comparing two annuities which offer monthly payments for ten years. Both annuities are identical with the exception of the payment dates. Annuity A pays on the first of each month while annuity B pays on the last day of each month. Which one of the following statements is correct concerning these two annuities? | |||
Annuity A has a higher future value than annuity B. | |||
Both annuities have the same future value as of ten years from today. | |||
Annuity B is an annuity due. | |||
Both annuities are of equal value today. | |||
Annuity B has a higher present value than annuity A. | |||
Your credit card company quotes you a rate of 14.9%. Interest is billed monthly. What is the actual rate of interest you are paying? | |||
15.96% | |
15.48% | |
13.97% | |
16.10% | |
14.90% |
EAR = ( 1+ (0.149/12))12 – 1 ; EAR = 15.96%
Which one of the following statements concerning the annual percentage rate is correct?
| ||
The rate of interest you actually pay on a loan is called the annual percentage rate. | ||
| ||
The annual percentage rate considers interest on interest. | ||
When firms advertise the annual percentage rate they are violating U.S. truth-in-lending laws. |
An annuity stream of cash flow payments is a set of:
increasing cash flows occurring each time period forever. | |
level cash flows occurring each time period for a fixed length of time. | |
increasing cash flows occurring each time period for a fixed length of time. | |
level cash flows occurring each time period forever. | |
arbitrary cash flows occurring each time period for no more than 10 years. |
Find the present value of $5,325 to be received in one period if the rate is 6.5%.
$5,000.00 | |
$5,023.58 | |
$5,644.50 | |
$5,671.13 | |
None of the above. |
What is the effective annual rate of 14.9% compounded continuously?
| 16.01% |
| 16.17% |
| 15.96% |
| 16.07% |
| 16.05% |
EAR = e0.149 – 1 = 2.718280.149 – 1 ; EAR = 16.07%
Using ex on a financial calculator: EAR = 16.07 % on the Texas Instruments BA II plus, the input is: 0.149
2nd , ex, -1, = 0.1607 = 16.07%
Rationale: $7,000 (1.06)4 = $8,837.34 |
Your parents are giving you $100 a month for four years while you are in college. At a 6% discount rate, what are these payments worth to you when you first start college? |
$4,167.09 | |
$4,258.03 | |
$3,797.40 | |
$4,279.32 | |
$4,198.79 |
The $100 represent an annuity, with 12 × 4 = 48 periods, and the Discount Rate = 6% / 12 = 0.5%
To calculate the PV of the annuity:
= $4,258.03
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