1). You are comparing two savings accounts. Account X has an APR of 4.00 percent and an EAR of 4.07 percent. Account Y has an APR of 4.05 percent and an EAR of 4.05 percent. Given this, you should invest in account: 

Y because it has the higher APR.

 Y because it has the lower EAR.

 X because it has the lower APR.

 X because it has the higher EAR.

 

 2). Which one of the following is a perpetuity? 

student loan payments of $200 a month for 20 years

 social security payments of $1,300 a month for life (note that life ends)

 car payments of $600 a month for 48 months

 $30,000 annual payments from a trust fund forever

 

3). Alex borrowed $20,000 three years ago at an annual interest rate of 5 percent. The loan term is 10 years. Since he borrowed the money, he has been making annual payments of $1,000 to the bank. Which type of loan does he have? 

interest-only

 pure discount

 compounded

 amortized

 

4). Ricardo is considering an investment that will pay $3,000 a year for 10 years, starting one year from today. How much should he pay for this investment if he wishes to earn a 7 percent rate of return? 

Answer rating: 100% (QA)

Question 1 Answer X because it has the higher EAR The EAR or effective annual rate is the true inter... View the full answer