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A perpetuity is defined as: 


A) a limited number of equal payments paid in even time increments.
B) payments of equal amounts that are paid irregularly but indefinitely. 
C) varying amounts that are paid at even intervals forever. 
D) unending equal payments paid at equal time intervals. 
E) unending equal payments paid at either equal or unequal time intervals. 

Correct Answer

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D

Kris borrowed $25,000 with an interest-only, 4-year loan at 4.75 percent. What is the amount of the loan payment in Year 4 if payments are made annually? 


A) $26,187.50 
B) $25,296.88 
C) $7,009.40 
D) $1,187.50 
E) $296.88 

Correct Answer

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The Rodriquez family is determined to purchase a $250,000 home without incurring any debt. The family plans to save $2,500 a quarter for this purpose and expects to earn 6.65 percent, compounded quarterly. How long will it be until the family can purchase a home? 


A) 23.09 years 
B) 14.85 years 
C) 35.46 years
D) 48.82 years 
E) 59.39 years 

Correct Answer

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You just signed a consulting contract that will pay you $38,000, $42,000, and $45,000 annually at the end of the next three years, respectively. What is the present value of this contract given a discount rate of 10.5? 


A) $102,138.76 
B) $108,307.67 
C) $112,860.33 
D) $92,433.27 
E) $96,422.15 

Correct Answer

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A

Sara wants to establish a trust fund to provide $75,000 in scholarships each year and earn a fixed 6.15 percent rate of return. How much money must she contribute to the fund assuming that only the interest income is distributed? 


A) $987,450 
B) $1,478,023 
C) $1,333,333 
D) $1,219,512 
E) $1,500,000 

Correct Answer

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Which one of the following statements correctly defines a time value of money relationship?


A) Time and future values are inversely related, all else held constant.
B) Interest rates and time are positively related, all else held constant.
C) An increase in a positive discount rate increases the present value. 
D) An increase in time increases the future value given a zero rate of interest. 
E) Time and present value are inversely related, all else held constant. 

Correct Answer

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Assume you work for an employer who will contribute $60 a week for the next 20 years into a retirement plan for your benefit. At a discount rate of 9 percent, what is this employee benefit worth to you today? 


A) $28,927.38 
B) $27,618.46 
C) $29,211.11 
D) $25,306.16 
E) $25,987.74 

Correct Answer

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Phil purchased a car today at a price of $8,500. He paid $300 down in cash and financed the balance for 36 months at 5.75 percent, compounded monthly. What is the amount of each monthly loan payment? 


A) $248.53 
B) $270.23 
C) $318.47 
D) $305.37 
E) $257.62 

Correct Answer

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You are seeking a fixed-rate mortgage of $195,000 with a term of 30 years. Your bank quotes an APR of 6.2 percent, compounded monthly. You can only afford monthly payments of $1,000, so you offer to pay off any remaining loan balance at the end of the loan term in the form of a single balloon payment. What will be the amount of the balloon payment? 


A) $232,191.91 
B) $173,316.67 
C) $194,480.18 
D) $202,828.59 
E) $226,315.07 

Correct Answer

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What is the APR on a loan with a stated rate of 2.35 percent per quarter? 


A) 9.40 percent 
B) 8.69 percent 
C) 8.38 percent 
D) 8.90 percent 
E) 9.74 percent 

Correct Answer

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Al's obtained a discount loan of $68,500 today that requires a repayment of $88,000, 3 years from today. What is the APR? 


A) 7.87 percent 
B) 8.01 percent 
C) 8.71 percent 
D)  8.57 percent
E) 8.90 percent 

Correct Answer

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A(n) ________ loan has regular payments that include both principal and interest but these payments are insufficient to pay off the loan. 


A) perpetual 
B) continuing
C) balloon 
D) pure discount 
E) interest-only 

Correct Answer

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Today, you borrowed $3,200 on a credit card that charges an interest rate of 12.9 percent, compounded monthly. How long will it take you to pay off this debt assuming that you do not charge anything else and make regular monthly payments of $60? 


A) 6.87 years 
B) 6.28 years 
C) 6.64 years 
D) 7.23 years 
E) 7.31 years 

Correct Answer

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You want to buy a new sports car for $55,000. The contract is in the form of a 60-month annuity due at an APR of 5.6 percent, compounded monthly. What will be your monthly payment? 


A) $1,047.90
B) $1,053.87 
C) $1,048.21
D) $1,063.30 
E) $1,072.11 

Correct Answer

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You are considering a project with cash flows of $16,500, $25,700, and $18,000 at the end of each year for the next three years, respectively. What is the present value of these cash flows, given a discount rate of 7.9 percent? 


A) $54,877.02 
B) $51,695.15 
C) $55,429.08 
D) $46,388.78 
E) $53,566.67 

Correct Answer

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The Friendly Bank wants to earn an EAR of 12 percent on its consumer loans. The bank uses daily compounding. What rate is the bank most apt to quote on these loans? 


A) 11.76 percent 
B) 11.38 percent 
C) 11.33 percent 
D) 12.12 percent 
E) 12.00 percent 

Correct Answer

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The Art Gallery is notoriously known as a slow-payer. The firm currently needs to borrow $25,000 and only one company will loan to them. The terms of the loan call for weekly payments of $500 at a weekly interest rate of .45%. What is the loan term? 


A) 42.5 weeks 
B) 45.00 weeks 
C) 56.77 weeks
D) 50.11 weeks 
E) 43.33 weeks 

Correct Answer

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How much would you need to invest today as a lump sum at 10.5 percent, compounded continuously, to have $200,000 in five years? 


A) $108,206.67 
B) $118,311.07 
C) $124,318.08 
D) $114,407.17 
E) $131,008.15 

Correct Answer

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Amortized loans must have which one of these characteristics over its life? 


A) Either equal or unequal principal payments 
B) One lump-sum principal payment 
C) Increasing payments 
D) Equal interest payments 
E) Declining periodic payments 

Correct Answer

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Mr. Rich arranged for a mortgage loan for 65 percent of the $2.5 million purchase price of a home. The monthly payment will be $10,400 and the mortgage term is 30 years. What is the EAR on this loan? 


A) 6.82 percent 
B) 6.25 percent 
C) 6.46 percent 
D) 6.91 percent 
E) 6.62 percent 

Correct Answer

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A

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