question

Which of the following statements related to interest rates are correct?
I. Annual interest rates consider the effect of interest earned on reinvested interest payments.
II. When comparing loans, you should compare the effective annual rates.
III. Lenders are required by law to disclose the effective annual rate of a loan to prospective borrowers.
IV. Annual and effective interest rates are equal when interest is compounded annually.
A. I and II only

answer

. II and IV only

question

Which one of the following statements concerning interest rates is correct?

answer

The effective annual rate equals the annual percentage rate when interest is compounded annually.

question

Which one of these statements related to growing annuities and perpetuities is correct?

answer

The present value of a growing perpetuity will decrease if the discount rate is increased.

question

Which one of the following statements correctly states a relationship

answer

Time and present value are inversely related, all else held constant.

question

Which one of the following compounding periods will yield the smallest present value given a stated future value and annual percentage rate?

answer

continuous

question

The entire repayment of which one of the following loans is computed simply by computing a single future value?

answer

pure discount loan

question

How is the principal amount of an interest-only loan repaid?

answer

The principal is repaid in a lump sum at the end of the loan period.

question

An amortized loan:

answer

may have equal or increasing amounts applied to the principal from each loan payment.

question

You need $25,000 today and have decided to take out a loan at 7 percent for five years. Which one of the following loans would be the least expensive? Assume all loans require monthly payments and that interest is compounded on a monthly basis.

answer

amortized loan with equal principal payments