Question 1

The PMT function and the IPMT functions use the same arguments EXCEPT ________.

Accepted Answer

The PMT function calculates the payment for a loan based on constant payments and a constant interest rate, while the IPMT function calculates the interest part of a loan payment for a given period. Both functions use similar arguments, but the key difference is the "per" argument, which specifies the period for which the interest payment is to be calculated and is specific to the IPMT function.

Question 2

The ________ function can be used to identify the principal portion for a mortgage payment.

Accepted Answer

The PPMT function (Principal Payment) is used to identify the portion of a mortgage payment that goes towards paying down the principal balance. The PMT function (Payment) calculates the entire mortgage payment, while the IPMT function (Interest Payment) calculates the portion of the payment that goes towards paying interest. The FV function (Future Value) calculates the future value of an investment or debt.

Question 3

The ________ function calculates the amount of interest paid over a specific number of periods.

Accepted Answer

The CUMIPMT function calculates the cumulative interest paid on a loan over a range of periods.

Question 4

The ________ function calculates the number of payment periods for an investment or loan if you know the loan amount,interest rate,and payment amount.

Accepted Answer

The NPER function, also known as the number of periods function, is used to calculate the number of payment periods for an investment or loan. This function requires the loan amount, interest rate, and payment amount as inputs. Therefore, option D is the correct choice. The other options are not relevant to this calculation: NPV is for calculating net present value, IPMT is for calculating the interest payment in a specific period, and RATE is for calculating the interest rate for a loan or investment.

Question 5

Identify the correct formula to calculate the cumulative principal paid on a mortgage loan for the second year of the loan (periods 1-12,where rate =5%,nper =120,present value = $147,000.

Accepted Answer

The correct formula to calculate the cumulative principal paid on a mortgage loan for the specified period is given by using the CUMIPMT function in Excel. The correct parameters for this function are the interest rate per period (.05/12 for a 5% annual rate divided by 12 months), the total number of payment periods (120 for a 10-year loan), the present value of the loan (147,000), and the start and end periods for which you want to calculate the cumulative interest (1 to 12 for the first year). The loan amount should be entered as a negative value to indicate an outgoing payment. The ABS function is used to get the absolute value since CUMIPMT returns a negative number. Therefore, the correct formula is ABS(CUMIPMT(.05/12, 120, 147000,1,12,0)).

Question 6

If you don't know the number of periods for a loan but you know the present value,payment,and number of interest rate,you can use the ________ function to determine the number of periods.

Accepted Answer

The NPER function (number of periods) is used to find out the number of payment periods required to pay off a loan. It requires the present value, payment amount and interest rate as inputs. Therefore, option D is the correct choice. Options A, B and C are not suitable for this scenario. The GUESS function is used for iterative calculations, PMT function is used to calculate the payment amount, and RATE function is used to calculate the interest rate.

Question 7

The ________ argument is used when you want to speculate about what the interest rate would be when using the RATE function.

Accepted Answer

The guess argument is used to provide an approximate interest rate to the RATE function. The function uses this argument to start its iterations in order to find the actual interest rate. Therefore, providing a good guess can help the function converge faster and provide a more accurate result.

Question 8

The ________ function calculates the interest rate per period for an investment or loan,given that you know the present value of the loan,payment amount,and number of payment periods.

Accepted Answer

The function in question is RATE, which is used to calculate the interest rate per period for a loan or investment. NPV (choice A) calculates the net present value, IPMT (choice B) calculates the interest paid during a specific period of a loan, and NPER (choice D) calculates the number of payment periods needed for a loan or investment.

Question 9

Often used to determine a company's value,________ is the movement of cash in and out of a business.

Accepted Answer

Cash flow is the movement of cash in and out of a business, and it is commonly used to determine a company's value. Economic risk, NPV, and capital budgeting are all important financial concepts, but they do not have a direct connection to a company's cash flow.

Question 10

A(n)________ occurs when there is a concern that a chosen act or activity will not generate sufficient revenues to cover operating costs and repay debt obligations.

Accepted Answer

Economic risk refers to the uncertainty regarding the ability of a business to generate sufficient revenues to cover operating costs and repay debt obligations. Cash flow, NPV, and capital budgeting are all related to financial analysis and decision-making but do not specifically address concerns about revenue generation and debt repayment.

Question 11

The pv argument in the PMT function represents the ________ of the loan.

Accepted Answer

The pv argument in the PMT function represents the loan amount. The other options are not correct because the payment amount is represented by the pmt argument, the percentage rate is represented by the rate argument, and there is no argument for percentage value.

Question 12

To display a positive result for the CUMIPMT function you would need to nest the ________ function.

Accepted Answer

The CUMIPMT function in Excel calculates the cumulative interest paid on a loan between two periods. To display a positive result from this function, which normally returns a negative value (since interest payments are considered an outflow of cash), you would nest it inside the ABS function. The ABS function returns the absolute value of a number, effectively converting negative numbers to positive.

Question 13

Identify the correct formula to calculate the payment for a loan,where rate =6%,loan amount = $2,000,and payments will be made monthly for six years.

Accepted Answer

The correct formula for calculating payment for a loan with monthly payments is PMT(rate/12, nper, -pv). In this case, the rate is 6% which must be divided by 12 to get the monthly rate (0.06/12), the nper is 6 years multiplied by 12 months (6*12), and the pv is -$2,000 (negative because it represents a loan). Therefore, the correct formula is PMT(0.06/12, 6*12, -2000), which corresponds to choice B.

Question 14

An amortization table shows all of the following EXCEPT ________.

Accepted Answer

An amortization table shows the breakdown of each payment, including the amount of principal and interest due, the remaining balance of the loan, and the total payments over the life of the loan. However, it does not show the interest rate for each payment, as the interest rate is typically fixed and does not change throughout the life of the loan.

Question 15

The ________ argument in the PMT function represents number of periods.

Accepted Answer

The argument "nper" in the PMT function represents the number of periods, or the total number of payments to be made. It is an essential input for the formula to calculate an accurate payment amount. Therefore, the best choice for this question is A, representing "nper."

Question 16

All of the following functions can be used to analyze an annuity investment EXCEPT ________.

Accepted Answer

ABS stands for absolute value and is not a financial function used to analyze an annuity investment. FV (Future Value), PV (Present Value), and PMT (Periodic Payment) are all commonly used financial functions in annuity analysis.

Question 17

If you don't know the interest rate for a loan but you know the present value,payment,and number of payment periods,you can use the ________ function to determine the interest rate.

Accepted Answer

The RATE function in Excel can be used to calculate the interest rate for a loan when you know the present value, payment, and number of payment periods. This function returns the interest rate per period, which can be multiplied by the number of periods per year to get the annual interest rate. The other functions mentioned (GUESS, PMT, and NPER) are not designed to calculate the interest rate for a loan based on these inputs.

Question 18

You would use the ________ function to find out how much money you would pay on a mortgage loan of $100,000 with a monthly rate of 5%.

Accepted Answer

The PMT (Payment) function is used to find out how much money you would need to pay each month on a mortgage loan. Therefore, it would be the best choice to calculate the monthly payment on a mortgage loan of $100,000 with a monthly rate of 5%.

Question 19

Identify the correct formula to calculate the cumulative interest paid on a mortgage loan for the second year of the loan (periods 13-24,where rate =9%,nper= 5,present value = $250,000.

Accepted Answer

The formula to calculate the cumulative interest paid on a mortgage loan for a specific period is CUMIPMT(rate, nper, pv, start_period, end_period, type). 
In this case, the rate is 9%, nper is 5 years or 60 months, present value is $250,000, and we want to calculate the cumulative interest paid for the second year of the loan, which corresponds to periods 13-24. 
Therefore, the correct formula is CUMIPMT(.09/12, 5*12, 250000, 13, 24, 0). 
Option B has the correct parameters but the start_period and end_period are inverted, which would result in a negative value for the cumulative interest paid. 
Option C has the wrong sign for the present value, which would lead to a wrong result. 
Option D uses 30/12 as the nper parameter, which does not correspond to the loan term of 5 years or 60 months.

Question 20

The ________ argument in the PMT function represents the balance you want to attain after the last payment is made.

Accepted Answer

The fv argument in the PMT function represents the future value or balance that you want to attain after the last payment is made. This is commonly used in loan calculations to determine what your final balance will be after all payments have been made.

Quiz 11: Loan Amortization, investment Analysis, and Asset Depreciation