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Pre-Test
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1
An example of an annuity is a stream of payments of $4,000 each at the end of every year for 20 years.
A)True
B)False
2
The stated interest rate is the same thing as the effective annual rate.
A)True
B)False
3
You have $300 to invest. You have 2 choices: savings account A, which earns 5 percent compounded annually or savings account B, which earns 4.75 percent compounded semiannually. Which account should you choose and why?
A)A; because it has a higher effective annual rate
B)A; because it has the higher stated rate
C)B; because it has a higher effective annual rate
D)B; because it has the higher stated rate
E)A; because it has the higher quoted rate
4
A given rate is quoted as 9 percent APR, but the EAR is 9.31 percent. What is the compounding period?
A)annually
B)semiannually
C)quarterly
D)monthly
E)daily
5
You will receive $500 payments at the beginning of each year, starting today, for the next 20 years. If you invest this money at an interest rate of 7.25 percent, how much will you have after 20 years?
A)$21,066.08
B)$22,593.37
C)$24,054.39
D)$24,899.74
E)$25,046.85
6
You are going to withdraw $600 at the end of each year for the next three years from an account that pays interest at a rate of 5 percent compounded annually. What amount must be in the account today in order for the account to reduce to a balance of zero after the last withdrawal?
A)$1,584.34
B)$1,633.95
C)$1,715.65
D)$1,813.02
E)$1,909.09
7
You notice a local consumer finance company is offering 18 percent APR loans with interest compounded monthly. What is the EAR?
A)17.21 percent
B)18.25 percent
C)18.81 percent
D)19.56 percent
E)19.68 percent
8
Moe purchases a $100, 20-year annuity. Larry purchases a $100 perpetuity. In both cases, payments begin in one year, and the appropriate interest rate is 8 percent. What is the present value today of Larry's payments occurring from year 21 on?
A)$100.00
B)$268.19
C)$456.17
D)$498.68
E)$1,250.00
9
Five years from now you will begin to receive cash flows of $225 per year. These cash flows will continue forever. If the discount rate is 8 percent, what is the present value?
A)$1,772.34
B)$1,914.14
C)$2,067.27
D)$2,098.73
E)$2,108.98
10
Your local S&L provides you with the following information concerning a possible single payment loan. You pay 3 "points" (1 point = 1 percent) up front, and the interest rate you are charged is 9 percent. If you borrow $10,000 for one year on these terms, at what rate are you actually borrowing?
A)10.59 percent
B)11.04 percent
C)11.20 percent
D)12.37 percent
E)12.48 percent





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