Chapter 5 finance

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? Ordinary annuity Annuity due Consol Ordinary perpetuity Perpetuity due

The stated interest rate is the interest rate expressed: as if it were compounded one time per year. as the quoted rate compounded by 12 periods per year. in terms of the rate charged per day. in terms of the interest payment made each period. in terms of an effective rate.

Anna pays .85 percent interest monthly on her credit card account. When the interest rate on that debt is expressed as if it were compounded annually, the rate would be referred to as the: annual percentage rate. simplified rate. quoted rate. stated rate. effective annual rate.

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. compounded rate. effective annual rate. perpetual rate. simple rate.

All else held constant, the present value of an annuity will decrease if you: increase the annuity's future value. increase the payment amount. increase the time period. decrease the discount rate. decrease the annuity payment.

Christie is buying a new car today and is paying a $500 cash down payment. She will finance the balance at 6.3 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? The present value of the car is equal to $500 + (36 ×$450). The $500 is the present value of the purchase. The car loan is an annuity due. To compute the initial loan amount, you must use a monthly interest rate. The future value of the loan is equal to 36 ×$450.

Which statement is true? All else equal, an ordinary annuity is more valuable than an annuity due. All else equal, a decrease in the number of payments increases the future value of an annuity due. An annuity with payments at the beginning of each period is called an ordinary annuity. All else equal, an increase in the discount rate decreases the present value and increases the future value of an annuity. All else equal, an increase in the number of annuity payments decreases the present value and increases the future value of an annuity.

Which one of the following is the annuity present value formula? C ×({1 - [1/(1 + r)t]}/r) C ×({1 - [1/(1 + r)t]} -r) C ×({1 - [r/(1 + r)t]}/r) C ×({1 - [1/(1 ×r)t]} ×r) C ×({1 - [r/(1 ×r)t]} ×r)

Which one of these is a perpetuity? Trust income of $1,200 a year forever Retirement pay of $2,200 a month for 20 years Lottery winnings of $1,000 a month for life Car payment of $260 a month for 60 months Rental payment of $800 a month for one year

Which one of the following statements concerning annuities is correct? The present value of an annuity is equal to the cash flow amount divided by the discount rate. An annuity due has payments that occur at the beginning of each time period. The future value of an annuity decreases as the interest rate increases. If unspecified, you should assume an annuity is an annuity due. An annuity is an unending stream of equal payments occurring at equal intervals of time.

Which one of the following qualifies as an annuity payment? Weekly grocery bill Clothing purchases Car repairs Auto loan payment Medical bills

Perpetuities have: irregular payments but constant payment periods. equal payments and an infinite life. equal payments and a set number of equal payment periods. less value than comparable annuities. no application in today's world.

All else held constant, the future value of an annuity will increase if you: decrease both the interest rate and the time period. increase the time period. decrease the present value. decrease the payment amount. decrease the interest rate.

You are comparing two annuities. Annuity A pays $100 at the end of each month for 10 years. Annuity B pays $100 at the beginning of each month for 10 years. The rate of return on both annuities is 8 percent. Which one of the following statements is correct given this information? The present value of Annuity A is equal to the present value of Annuity B. Annuity B will pay one more payment than Annuity A will. The future value of Annuity A is greater than the future value of Annuity B. Annuity B has both a higher present value and a higher future value than Annuity A. Annuity A has a higher future value but a lower present value than Annuity B.

Which one of the following features distinguishes an ordinary annuity from an annuity due? Number of equal payments Amount of each payment Frequency of the payments Annuity interest rate Timing of the annuity payments

Which one of the following is an ordinary annuity, but not a perpetuity? $75 paid at the beginning of each monthly period for 50 years $15 paid at the end of each monthly period for an infinite period of time $40 paid quarterly for 5 years, starting today $50 paid every year for ten years, starting today $25 paid weekly for 1 year, starting one week from today

A 30-year home mortgage is a classic example of: a set of unequal cash flows. an ordinary annuity. a perpetuity. an annuity due. a consol.

You are comparing three investments, all of which pay $100 a month and have an interest rate of 8 percent. One is ordinary annuity, one is an annuity due, and the third investment is a perpetuity. Which one of the following statements is correct given these three investment options? To be the perpetuity, the payments must occur on the first day of each monthly period. The ordinary annuity would be more valuable than the annuity due if both had a life of 10 years. The present value of the perpetuity has to be higher than the present value of either the ordinary annuity or the annuity due. The future value of all three investments must be equal. The present value of all three investments must be equal.

Which one of the following has the highest effective annual rate? 6 percent compounded annually 6 percent compounded semiannually 6 percent compounded quarterly 6 percent compounded daily 6 percent compounded every 2 years

Assume all else is equal. When comparing savings accounts, you should select the account that has the: lowest annual percentage rate. highest annual percent rate. highest stated rate. lowest effective annual rate. highest effective annual 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 less than 12.9 percent. can either be less than or equal to 12.9 percent. is 12.9 percent. can either be greater than or equal to 12.9 percent. will be greater than 12.9 percent.

Which one of the following statements is correct? The APR is equal to the EAR for a loan that charges interest monthly. The EAR is always greater than the APR. The APR on a monthly loan is equal to (1 + monthly interest rate)12- 1. The APR is the best measure of the actual rate you are paying on a loan. The EAR, rather than the APR, should be used to compare both investment and loan options.

A loan has an APR of 8.5 percent and an EAR of 8.5 percent. Given this, the loan must: have a one-year term. have a zero percent interest rate. charge interest annually. must be partially amortized with each loan payment. require the accrued interest be paid in full with each monthly payment.

Scott borrowed $2,500 today at an APR of 7.4 percent. The loan agreement requires him to repay $2,685 in one lump sum payment one year from now. This type of loan is referred to as a(n): interest-only loan. pure discount loan. quoted rate loan. compound interest loan. amortized loan.

Cindy is taking out a loan today. The cash amount that she is receiving is equal to the present value of the lump sum payment that she will be required to pay two years from today. Which type of loan is this? Principal-only Amortized Interest-only Compound Pure discount

Travis borrowed $10,000 four years ago at an annual interest rate of 7 percent. The loan term is six years. Since he borrowed the money, Travis has been making annual payments of $700 to the bank. Which type of loan does he have? Interest-only Pure discount Compound Amortized Complex

Letitia borrowed $6,000 from her bank two years ago. The loan term is four years. Each year, she must repay the bank $1,500 plus the annual interest. Which type of loan does she have? Amortized Blended discount Interest-only Pure discount Complex

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 Complex Pure discount Lump sum Interest-only

You just borrowed $3,000 from your bank and agreed to repay the interest on an annual basis and the principal at the end of three years. What type of loan did you obtain? Interest-only Amortized Perpetual Pure discount Lump sum

Suenette plans to save $600 at the end of Year 1, $800 at the end of Year 2, and $1,000 at the end of Year 3. If she earns 3.4 percent on her savings, how much money will she have saved at the end of Year 3? $2,200.00 $2,238.47 $2,468.69 $2,309.16 $2,402.19

McClary Tires plans to save $20,000, $25,000, $27,500, and $30,000 at the end of each year for Years 1 to 4, respectively. If it earns 3.3 percent on its savings, how much will the firm have saved at the end of Year 4? $107,525.40 $108,392.69 $111,860.57 $107,130.78 $110,426.41

JK Industries just signed a sales contract with a new customer. JK will receive annual payments in the amount of $62,000, $108,000, $135,000, and $150,000 at the end of Years 1 to 4, respectively. What is this contract worth at the end of Year 4 if the firm earns 4.3 percent on its savings? $497,425.35 $402,311.19 $466,118.00 $485,271.13 $478,639.54

ST Trucking just signed a $3.8 million contract. The contract calls for a payment of $1.1 million today, $1.3 million one year from today, and $1.4 million two years from today. What is this contract worth today at a discount rate of 8.7 percent? $3,783,648.48 $3,480,817.37 $2,108,001.32 $3,202,223.89 $3,202,840.91

Capstone Investments is considering a project that will produce cash inflows of $11,000 at the end of Year 1, $24,000 in Year 2, and $36,000 in Year 3. What is the present value of these cash inflows at a discount rate of 12 percent? $41,997.60 $46,564.28 $54,578.17 $54,868.15 $63,494.54