5. Present value is best defined as:

Select one:

a. the amount that must be invested per year and compounded at a specified rate and time to reach a specified present value

b. the amount of a specified future value compounded at a specified rate which can be invested currently

c. all of these are appropriate definitions for present value

d. the amount that must be invested now and compounded at a specified rate and time to reach a specified future value

6. The effective rate is:

Select one:

a. the stated rate

b. the simple rate

c. the true annual rate

d. the true semiannual rate

7. Present value does not:

Select one:

a. find the present dollar amount

b. know the present dollar amount

c. know the future value

d. use the tables

8. When compounding interest, a common mistake is to add the interest to the:

Select one:

a. present value

b. previous principal

c. original principal

d. future value

9. When interest is added to the principal amount and then interest is calculated on this new amount, the process is called:

Select one:

a. compound interest

b. single interest

c. simple interest

d. present value

11. When comparing the same period of time and interest rate used to compute simple interest, compound interest results in:

Select one:

a. increased yield for the investor

b. higher interest charges to the investor

c. all of these occur using compound interest

d. an increased maturity date

15. Provide an appropriate response. The accumulation phase of an annuity is characterized by:

I. paying money into the fund

II. receiving money from the fund

III. the fund balance may earn compound interest

Select one:

a. III only

b. II only

c. I only

d. both I and III

16.Provide an appropriate response. An annuity paid over a guaranteed number of periods is a(n):

Select one:

a. annuity certain

b. annuity due

c. ordinary annuity

d. contingent annuity

20.The sum of the payments of an annuity plus the interest is called the:

Select one:

a. amount of the annuity

b. payoff amount

c. economic sum

d. financial total

25. All else being equal, an annuity due, when compared to an ordinary annuity, results in a(n):

Select one:

a. equal value

b. value twice the amount of the ordinary annuity

c. lower value

d. higher value

26. The primary difference between an annuity due and an ordinary annuity is:

I. when the money is paid into the annuity

II. the way the money is paid out of the annuity

III. with an annuity due, payment is made at the beginning of the period

Select one:

a. III only

b. both I and III

c. I only

d. II only

29. Which of the following is not associated with a mortgage loan?

Select one:

a. collateral

b. real propert

c. unsecured debt

d. equity

34. The process of amortization includes which of the following?

Select one:

a. a specific length of time

b. equal payments

c. both equal payments and a specific length of time

d. variable rates

40. The repayment of a loan in equal installments that are applied to principal and interest over a specific period of time is called:

Select one:

a. conventional mortgage

b. adjustable rate mortgage

c. amortization

d. constant mortgage