Question 1

Farmers Bank offers to lend you $50,000 at a nominal rate of 5.0%,simple interest,with interest paid quarterly.Merchants Bank offers to lend you the $50,000,but it will charge 6.8%,simple interest,with interest paid at the end of the year.What's the difference in the effective annual rates charged by the two banks?
A) 2.07%
B) 2.00%
C) 1.73%
D) 1.71%
E) 2.12%

Accepted Answer

Students must understand that "simple interest with interest paid quarterly" means that the bank gets the interest at the end of each quarter,hence it can invest it,presumably at the same nominal rate.This results in the same effective rate as if it were stated as "5.0%,quarterly compounding." 11ea856c_8bea_bc2d_9aec_dde87407e2b2_TB1222_00

Question 2

Your child's orthodontist offers you two alternative payment plans.The first plan requires a $4,000 immediate up-front payment.The second plan requires you to make monthly payments of $137.41,payable at the end of each month for 3 years.What nominal annual interest rate is built into the monthly payment plan?
A) 17.81%
B) 14.50%
C) 14.36%
D) 13.50%
E) 11.34%

Accepted Answer

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Question 3

You plan to borrow $47,400 at a 7.5% annual interest rate.The terms require you to amortize the loan with 7 equal end-of-year payments.How much interest would you be paying in Year 2?
A) $2,520.35
B) $2,835.40
C) $2,992.92
D) $3,150.44
E) $3,623.01

Accepted Answer

Find the required payment: 11ea856c_8be9_d1c3_9aec_cbf8a470ef14_TB1222_00 Amortization schedule (first 2 years) 11ea856c_8be9_d1c4_9aec_4589109ba8ef_TB1222_00

Question 4

You agree to make 24 deposits of $500 at the beginning of each month into a bank account.At the end of the 24th month,you will have $13,000 in your account.If the bank compounds interest monthly,what nominal annual interest rate will you be earning?
A) 8.91%
B) 6.63%
C) 8.00%
D) 5.79%
E) 7.62%

Accepted Answer

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Question 5

Pace Co.borrowed $10,000 at a rate of 7.25%,simple interest,with interest paid at the end of each month.The bank uses a 360-day year.How much interest would Pace have to pay in a 30-day month?
A) $57.40
B) $47.13
C) $60.42
D) $73.10
E) $50.15

Accepted Answer

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Question 6

Suppose you borrowed $37,000 at a rate of 9.0% and must repay it in 4 equal installments at the end of each of the next 4 years.How large would your payments be?
A) $8,908.18
B) $11,420.74
C) $9,136.59
D) $10,735.50
E) $9,707.63

Accepted Answer

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Question 7

You are considering investing in a bank account that pays a nominal annual rate of 7%,compounded monthly.If you invest $3,000 at the end of each month,how many months will it take for your account to grow to $310,000?
A) 95.70
B) 90.84
C) 72.18
D) 81.11
E) 93.27

Accepted Answer

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Question 8

Your subscription to Investing Wisely Weekly is about to expire.You plan to subscribe to the magazine for the rest of your life,and you can renew it by paying $85 annually,beginning immediately,or you can get a lifetime subscription for $620,also payable immediately.Assuming that you can earn 6.0% on your funds and that the annual renewal rate will remain constant,how many years must you live to make the lifetime subscription the better buy?
A) 6.95
B) 8.86
C) 9.14
D) 11.15
E) 10.60

Accepted Answer

Find N for an annuity due with the indicated terms to determine how long you must live to make the lifetime subscription worthwhile. 11ea856c_8bea_46fa_9aec_f1869ed2a83c_TB1222_00

Question 9

Your uncle will sell you his bicycle shop for $170,000,with "seller financing," at a 6.0% nominal annual rate.The terms of the loan would require you to make 12 equal end-of-month payments per year for 4 years,and then make an additional final (balloon)payment of $50,000 at the end of the last month.What would your equal monthly payments be?
A) $2,362.52
B) $3,068.20
C) $2,792.07
D) $3,681.84
E) $3,129.57

Accepted Answer

Monthly annuity,so interest must be calculated on a monthly basis. 11ea856c_8be9_aab1_9aec_b9ad079b016e_TB1222_00

Question 10

You are considering an investment in a Third World bank account that pays a nominal annual rate of 18%,compounded monthly.If you invest $5,000 at the beginning of each month,how many months would it take for your account to grow to $450,000? Round fractional months up.
A) 47
B) 57
C) 67
D) 51
E) 70

Accepted Answer

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Question 11

Your company has just taken out a 1-year installment loan for $72,500 at a nominal rate of 20.0% but with equal end-of-month payments.What percentage of the 2nd monthly payment will go toward the repayment of principal?
A) 101.72%
B) 71.70%
C) 86.71%
D) 83.37%
E) 97.55%

Accepted Answer

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Question 12

Your bank offers to lend you $114,400 at an 8.5% annual interest rate to start your new business.The terms require you to amortize the loan with 10 equal end-of-year payments.How much interest would you be paying in Year 2?
A) $7,254.82
B) $8,161.67
C) $8,615.10
D) $9,068.53
E) $10,428.81

Accepted Answer

Find the required payment: 11ea856c_8be9_f8d5_9aec_cdc74ebef193_TB1222_00 Amortization schedule (first 2 years) 11ea856c_8be9_f8d6_9aec_c1a2e0f63b05_TB1222_00

Question 13

Suppose you are buying your first condo for $160,000,and you will make a $15,000 down payment.You have arranged to finance the remainder with a 30-year,monthly payment,amortized mortgage at a 6.5% nominal interest rate,with the first payment due in one month.What will your monthly payments be?
A) $971.49
B) $962.32
C) $925.66
D) $769.86
E) $916.50

Accepted Answer

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Question 14

Suppose you borrowed $15,000 at a rate of 11.1% and must repay it in 5 equal installments at the end of each of the next 5 years.How much interest would you have to pay in the first year?
A) $1,248.75
B) $1,481.85
C) $1,615.05
D) $1,665.00
E) $1,714.95

Accepted Answer

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Question 15

Your sister turned 35 today,and she is planning to save $60,000 per year for retirement,with the first deposit to be made one year from today.She will invest in a mutual fund that's expected to provide a return of 7.5% per year.She plans to retire 30 years from today,when she turns 65,and she expects to live for 25 years after retirement,to age 90.Under these assumptions,how much can she spend each year after she retires? Her first withdrawal will be made at the end of her first retirement year.
A) $495,339.99
B) $601,086.73
C) $567,693.03
D) $556,561.79
E) $539,864.94

Accepted Answer

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Question 16

Suppose you borrowed $80,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years.How much would you still owe at the end of the first year,after you have made the first payment?
A) $66,338.29
B) $68,795.27
C) $63,267.08
D) $61,424.35
E) $74,323.46

Accepted Answer

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Question 17

You just deposited $2,000 in a bank account that pays a 4.0% nominal interest rate,compounded quarterly.If you also add another $5,000 to the account one year (4 quarters)from now and another $7,500 to the account two years (8 quarters)from now,how much will be in the account three years (12 quarters)from now?
A) $15,472.46
B) $19,340.58
C) $11,604.35
D) $18,566.96
E) $14,234.67

Accepted Answer

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Question 18

Suppose you deposited $26,000 in a bank account that pays 5.25% with daily compounding based on a 360-day year.How much would be in the account after 8 months,assuming each month has 30 days?
A) $21,271.57
B) $25,579.74
C) $26,926.04
D) $33,119.03
E) $26,656.78

Accepted Answer

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Question 19

Suppose you borrowed $25,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years.By how much would you reduce the amount you owe in the first year?
A) $5,804.89
B) $5,572.70
C) $4,469.77
D) $5,920.99
E) $5,108.30

Accepted Answer

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Question 20

Your brother's business obtained a 30-year amortized mortgage loan for $300,000 at a nominal annual rate of 7.0%,with 360 end-of-month payments.The firm can deduct the interest paid for tax purposes.What will the interest tax deduction be for Year 1?
A) $18,813.11
B) $24,248.01
C) $20,903.46
D) $20,485.39
E) $19,440.22

Accepted Answer

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Quiz 5: Time Value of Money

You plan to borrow $47,400 at a 7.5% annual interest rate.The terms require you to amortize the loan with 7 equal end-of-year payments.How much interest would you be paying in Year 2?

You agree to make 24 deposits of $500 at the beginning of each month into a bank account.At the end of the 24th month,you will have $13,000 in your account.If the bank compounds interest monthly,what nominal annual interest rate will you be earning?

Pace Co.borrowed $10,000 at a rate of 7.25%,simple interest,with interest paid at the end of each month.The bank uses a 360-day year.How much interest would Pace have to pay in a 30-day month?

Suppose you borrowed $37,000 at a rate of 9.0% and must repay it in 4 equal installments at the end of each of the next 4 years.How large would your payments be?

You are considering investing in a bank account that pays a nominal annual rate of 7%,compounded monthly.If you invest $3,000 at the end of each month,how many months will it take for your account to grow to $310,000?

You are considering an investment in a Third World bank account that pays a nominal annual rate of 18%,compounded monthly.If you invest $5,000 at the beginning of each month,how many months would it take for your account to grow to $450,000? Round fractional months up.

Your company has just taken out a 1-year installment loan for $72,500 at a nominal rate of 20.0% but with equal end-of-month payments.What percentage of the 2nd monthly payment will go toward the repayment of principal?

Your bank offers to lend you $114,400 at an 8.5% annual interest rate to start your new business.The terms require you to amortize the loan with 10 equal end-of-year payments.How much interest would you be paying in Year 2?

Suppose you are buying your first condo for $160,000,and you will make a $15,000 down payment.You have arranged to finance the remainder with a 30-year,monthly payment,amortized mortgage at a 6.5% nominal interest rate,with the first payment due in one month.What will your monthly payments be?

Suppose you borrowed $15,000 at a rate of 11.1% and must repay it in 5 equal installments at the end of each of the next 5 years.How much interest would you have to pay in the first year?

Suppose you borrowed $80,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years.How much would you still owe at the end of the first year,after you have made the first payment?

Suppose you deposited $26,000 in a bank account that pays 5.25% with daily compounding based on a 360-day year.How much would be in the account after 8 months,assuming each month has 30 days?

Suppose you borrowed $25,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years.By how much would you reduce the amount you owe in the first year?

Your brother's business obtained a 30-year amortized mortgage loan for $300,000 at a nominal annual rate of 7.0%,with 360 end-of-month payments.The firm can deduct the interest paid for tax purposes.What will the interest tax deduction be for Year 1?