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Roberto can afford car payments of $450 per month for 4 years.If the interest rate is 5.3 percent, how much money can he afford to borrow?


A) $7,778.74
B) $24,736.49
C) $19,540.33
D) $19,425.49
E) $23,673.02

F) A) and D)
G) A) and C)

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Travis is buying a car and will finance it with a loan that requires monthly payments of $265 for the next four years.His car payments can be described by which one of the following terms?


A) Perpetuity
B) Annuity
C) Consol
D) Lump sum
E) Present value

F) B) and D)
G) B) and E)

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A local magazine is offering a $5,000 grand prize to one lucky winner.The prize will be paid in five annual payments of $1,000 each, starting one year after the drawing.How much would this prize be worth to you if you can earn 8 percent on your money?


A) $ 4,823.45
B) $ 4,622.88
C) $ 3,992.71
D) $ 4,312.13
E) $ 3,312.13

F) C) and D)
G) C) and E)

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Which one of these is a perpetuity?


A) Trust income of $1,200 a year forever
B) Retirement pay of $2,200 a month for 20 years
C) Lottery winnings of $1,000 a month for life
D) Car payment of $260 a month for 60 months
E) Rental payment of $800 a month for one year

F) B) and D)
G) B) and C)

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The Egg House just borrowed $660,000 to build a new restaurant.The loan terms call for equal annual payments at the end of each year.The loan is for 15 years at an APR of 8.35 percent.How much of the first annual payment will be used to reduce the principal balance?


A) $21,311.62
B) $23,653.18
C) $18,211.08
D) $48,911.08
E) $51,420.90

F) B) and C)
G) C) and D)

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Today, you are purchasing a 15-year, 6.5 percent annuity at a cost of $36,500.The annuity will pay annual payments starting one year from today.What is the amount of each payment?


A) $4,177.59
B) $3,881.88
C) $2,420.91
D) $3,679.71
E) $4,874.70

F) A) and B)
G) All of the above

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Max's Kennels spent $220,000 to refurbish its current facility.The firm borrowed 60 percent of the refurbishment cost at 5.95 percent interest for six years.What is the amount of each monthly payment?


A) $1,985.25
B) $2,205.36
C) $2,356.23
D) $2,184.51
E) $1,895.32

F) A) and B)
G) B) and E)

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What is the effective annual rate of 9.6 percent compounded semiannually?


A) 9.71 percent
B) 9.83 percent
C) 9.79 percent
D) 9.68 percent
E) 9.92 percent

F) All of the above
G) A) and B)

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Julie is borrowing $14,950 to purchase a car.The loan terms are 48 months at 6.95 percent interest, compounded monthly.How much interest, rounded to the nearest dollar, will she pay on this loan if she pays the loan as agreed?


A) $2,338
B) $2,414
C) $1,959
D) $1,806
E) $2,217

F) A) and E)
G) A) and D)

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Chandler Tire Co.is trying to decide which one of two projects it should accept.Both projects have the same start-up costs.Project 1 will produce annual cash flows of $52,000 a year for six years.Project 2 will produce cash flows of $48,000 a year for eight years.The company requires a 15 percent rate of return.Which project should the company select and why?


A) Project 1, because the annual cash flows are greater by $4,000 than those of Project 2
B) Project 1, because the present value of its cash inflows exceeds those of Project 2 by $14,211.62
C) Project 2, because the total cash inflows are $72,000 greater than those of Project 1
D) Project 2, because the present value of the cash inflows exceeds those of Project 1 by $18,598.33
E) It does not matter as both projects have almost identical present values.

F) C) and D)
G) A) and E)

Correct Answer

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Your aunt loaned you money at 1.00 percent interest per month.What is the APR of this loan?


A) 11.88 percent
B) 12.00 percent
C) 12.16 percent
D) 16.00 percent
E) 16.28 percent

F) A) and B)
G) B) and E)

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An amortized, 3-year loan has annual payments and an effective annual rate of 14.56 percent.What is the APR?


A) 13.09 percent
B) 13.46 percent
C) 13.90 percent
D) 14.56 percent
E) 14.82 percent

F) A) and D)
G) B) and E)

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Tiger Trucking Company is considering a project that will produce cash inflows of $18,000 at the end of Year 1, $32,000 in Year 2, and $45,000 in Year 3.What is the present value of these cash inflows at a discount rate of 9 percent?


A) $65,615.21
B) $70,181.89
C) $78.195.78
D) $78,485.76
E) $87,112.15

F) A) and B)
G) A) and C)

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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?


A) Interest-only
B) Pure discount
C) Compound
D) Amortized
E) Complex

F) D) and E)
G) A) and C)

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Today, you are purchasing a 10-year, 4.8 percent annuity at a cost of $50,000.The annuity will pay annual payments starting one year from today.What is the amount of each payment?


A) $13,619.19
B) $6,412.49
C) $13,189.57
D) $6,679.71
E) $6,874.70

F) C) and D)
G) A) and E)

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Which one of the following is the annuity present value formula?


A) C × ({1 - [1/(1 + r) t]}/r)
B) C × ({1 - [1/(1 + r) t]} -r)
C) C × ({1 - [r/(1 + r) t]}/r)
D) C × ({1 - [1/(1 × r) t]} × r)
E) C × ({1 - [r/(1 × r) t]} × r)

F) C) and D)
G) A) and B)

Correct Answer

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Assume a project will produce cash flows of $22,400, $28,700, $30,300, $10,900 at the end of Years 1 to 4, respectively.If the discount rate is 14.7 percent, what is the current value of these cash flows?


A) $69,407.19
B) $64,221.80
C) $67,721.24
D) $70,407.16
E) $71,121.03

F) A) and B)
G) A) and C)

Correct Answer

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Given an interest rate of 9.3 percent per year, what is the value at t = 6 of a perpetual stream of $1,000 annual payments that begin t =21?


A) $2,412.02
B) $ 3.096.24
C) $ 3,384.19
D) $ 2,832.79
E) $1,273.43

F) C) and D)
G) B) and D)

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Which one of the following statements concerning annuities is correct?


A) The present value of an annuity is equal to the cash flow amount divided by the discount rate.
B) An annuity due has payments that occur at the beginning of each time period.
C) The future value of an annuity decreases as the interest rate increases.
D) If unspecified, you should assume an annuity is an annuity due.
E) An annuity is an unending stream of equal payments occurring at equal intervals of time.

F) A) and B)
G) A) and E)

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Walker's charges a daily rate of .049 percent on its store credit cards.What interest rate is the company required by law to report to potential customers? Assume each quarter has exactly 91.25 days.


A) 15.98 percent
B) 17.89 percent
C) 16.67 percent
D) 17.45 percent
E) 16.65 percent

F) B) and E)
G) None of the above

Correct Answer

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