1. Luis is going to receive $20,000 six years from now. Soo Lee is going to receive $20,000 nine years from now. Which one of the following statements is correct if both Luis and Soo Lee apply a 7 percent discount rate to these amounts?

A. In today's dollars, Luis' money is worth more than Soo Lee's.

B. Twenty years from now, the value of Luis' money will be equal to the value of Soo Lee's money.

C. The present values of Luis and Soo Lee's monies are equal.

D. In future dollars, Soo Lee's money is worth more than Luis' money.

E. Soo Lee's money is worth more than Luis' money given the 7 percent discount rate.

2. A microfinance company charges petty traders interest rate of 5 percent per month (60 percent APR with monthly compounding). What is the effective annual rate being charged the petty traders?

A. 67.17 percent

B. 93.04 percent

C. 79.59 percent

D. 60.00 percent

3. You are borrowing $23,800 to buy a car. The terms of the loan call for monthly payments for five years at 4.65 percent interest. What is the amount of each payment?

A. $391.40

B. $313.72

C. $445.33

D. $414.64

E. $502.19

4. You borrow $40,000 and arrange to pay off the loan in five equal annual installments. Payments will be made at the end of each year. The loan interest rate is 8.0 percent. Calculate your loan balance after making the third payment. A. $19.932

B. $17,865

C. $15.901

D. $22,017

E. $25,818

5. Which one of the following statements related to loan interest rates is correct?

A. When comparing loans you should compare the effective annual rates.

B. The more frequent the compounding period, the lower the effective annual rate given a fixed annual percentage rate.

C. The annual percentage rate considers the compounding of interest.

D. Regardless of the compounding period, the effective annual rate will always be higher than the annual percentage rate.

6. An investment pays interest rate of 6.6 percent and $7,200 annual payments for 19 years, with the first payment occurring one year from today. What is the value of the investment today?

A. $76,702

B. $67,300

C. $82,009

D. $72,000

E. $85,607

7. What is the present value of $500,000 to be received 10 years from today if the discount rate is 7 percent?

A. $192,522

B. $128,895

C. $318,619

D. $176,137

E. $254,175

8. You borrow $250,000 to buy a home. The terms of the loan are as follows: 30-year mortgage loan at a rate of 4.50 percent with monthly payments. What percentage of your total payments in the first five years will go toward interest, if you make your payments as scheduled?

A. 74 percent

B. 71 percent

C. 62 percent

D. 68 percent

E. 58 percent

9. You borrow $298,200 to buy a house. The mortgage rate is 4.375 percent and the loan period is 30 years. Payments are made monthly,beginning one month from today. If you pay the mortgage according to the loan agreement, what will be your loan balance just after you make the 60th monthly payment? [ You make your monthly payments for five years].

A. $238,581

B. $271,314

C. $189,263

D. $283,308

E. $261,356

10. The banks in your area offer the following rates of interest on their savings accounts. If you want to open one of these accounts, which bank should you select? Bank A: 2.872 percent APR with daily compounding. Bank B: 2.840 percent APR with monthly compounding. Bank C: 2.882 percent APR with annual compounding. Bank D: 2.872 percent APR with quarterly compounding. Bank E: 2.882 percent APR with semi-annual compounding.

A. Bank B

B. Bank A

C. Bank D

D. Bank C

E. Bank E

Answer rating: 100% (QA)

1 A In todays dollars Luis money is worth mor... View the full answer