FRL300 COMMON HELL FINAL CH6 || A+ GUARANTEED.
An ordinary annuity is best defined by which one of the following? correct answers equal
payments paid at regular intervals over a stated time period
Which one of the following accurately defines a perpetuity? correct answers unending equal
payments paid at equal time intervals
Which one of the following terms is used to identify a British perpetuity? correct answers consol
The interest rate that is quoted by a lender is referred to as which one of the following? correct
answers stated interest rate
A monthly interest rate expressed as an annual rate would be an example of which one of the
following rates? correct answers effective annual rate
What is the interest rate charged per period multiplied by the number of periods per year called?
correct answers annual percentage rate
A loan where the borrower receives money today and repays a single lump sum on a future date
is called a(n) _____ loan. correct answers pure discountv
Which one of the following terms is used to describe a loan that calls for periodic interest
payments and a lump sum principal payment? correct answers interest-only loan
Which one of the following terms is used to describe a loan wherein each payment is equal in
amount and includes both interest and principal? correct answers amortized loan
Which one of the following terms is defined as a loan wherein the regular payments, including
both interest and principal amounts, are insufficient to retire the entire loan amount, which then
must be repaid in one lump sum? correct answers balloon loan
,You are comparing two annuities which offer quarterly payments of $2,500 for five years and
pay 0.75 percent interest per month. Annuity A will pay you on the first of each month while
annuity B will pay you on the last day of each month. Which one of the following statements is
correct concerning these two annuities? correct answers Annuity B has a smaller present value
than annuity A.
You are comparing two investment options that each pay 5 percent interest, compounded
annually. Both options will provide you with $12,000 of income. Option A pays three annual
payments starting with $2,000 the first year followed by two annual payments of $5,000 each.
Option B pays three annual payments of $4,000 each. Which one of the following statements is
correct given these two investment options? correct answers Option B has a higher present value
at time zero than does option A.
You are considering two projects with the following cash flows:
Year 1: $9,000 (Project X), $7,000 (Project Y)
Year 2: 8000, 7500
Year 3: 7500, 8000
Year 4: 7000, 9000
Which of the following statements are true concerning these two projects?
I. Both projects have the same future value at the end of year 4, given a positive rate of return.
II. Both projects have the same future value given a zero rate of return.
III. Project X has a higher present value than Project Y, given a positive discount rate.
IV. Project Y has a higher present value than Project X, given a positive discount rate. correct
answers II and III only
Which one of the following statements is correct given the following two sets of project cash
flows?
Year 1: $6000 (PA), $2000 (PB)
Year 2: 0, 3000
, Year 3: 2500, 3000
Year 4: 2500, 3000 correct answers As long as the discount rate is positive, Project B will always
be worth less today than will Project A.
Which one of the following statements related to annuities and perpetuities is correct? correct
answers A perpetuity comprised of $100 monthly payments is worth more than an annuity
comprised of $100 monthly payments, given an interest rate of 12 percent, compounded monthly.
Which of the following statements related to interest rates are correct?
I. Annual interest rates consider the effect of interest earned on reinvested interest payments.
II. When comparing loans, you should compare the effective annual rates.
III. Lenders are required by law to disclose the effective annual rate of a loan to prospective
borrowers. correct answers II and IV only
Which one of the following statements concerning interest rates is correct? correct answers The
effective annual rate equals the annual percentage rate when interest is compounded annually.
Which one of these statements related to growing annuities and perpetuities is correct? correct
answers The present value of a growing perpetuity will decrease if the discount rate is increased.
Which one of the following statements correctly states a relationship? correct answers Time and
present value are inversely related, all else held constant.
Which one of the following compounding periods will yield the smallest present value given a
stated future value and annual percentage rate? correct answers continuous
The entire repayment of which one of the following loans is computed simply by computing a
single future value? correct answers pure discount loan
An ordinary annuity is best defined by which one of the following? correct answers equal
payments paid at regular intervals over a stated time period
Which one of the following accurately defines a perpetuity? correct answers unending equal
payments paid at equal time intervals
Which one of the following terms is used to identify a British perpetuity? correct answers consol
The interest rate that is quoted by a lender is referred to as which one of the following? correct
answers stated interest rate
A monthly interest rate expressed as an annual rate would be an example of which one of the
following rates? correct answers effective annual rate
What is the interest rate charged per period multiplied by the number of periods per year called?
correct answers annual percentage rate
A loan where the borrower receives money today and repays a single lump sum on a future date
is called a(n) _____ loan. correct answers pure discountv
Which one of the following terms is used to describe a loan that calls for periodic interest
payments and a lump sum principal payment? correct answers interest-only loan
Which one of the following terms is used to describe a loan wherein each payment is equal in
amount and includes both interest and principal? correct answers amortized loan
Which one of the following terms is defined as a loan wherein the regular payments, including
both interest and principal amounts, are insufficient to retire the entire loan amount, which then
must be repaid in one lump sum? correct answers balloon loan
,You are comparing two annuities which offer quarterly payments of $2,500 for five years and
pay 0.75 percent interest per month. Annuity A will pay you on the first of each month while
annuity B will pay you on the last day of each month. Which one of the following statements is
correct concerning these two annuities? correct answers Annuity B has a smaller present value
than annuity A.
You are comparing two investment options that each pay 5 percent interest, compounded
annually. Both options will provide you with $12,000 of income. Option A pays three annual
payments starting with $2,000 the first year followed by two annual payments of $5,000 each.
Option B pays three annual payments of $4,000 each. Which one of the following statements is
correct given these two investment options? correct answers Option B has a higher present value
at time zero than does option A.
You are considering two projects with the following cash flows:
Year 1: $9,000 (Project X), $7,000 (Project Y)
Year 2: 8000, 7500
Year 3: 7500, 8000
Year 4: 7000, 9000
Which of the following statements are true concerning these two projects?
I. Both projects have the same future value at the end of year 4, given a positive rate of return.
II. Both projects have the same future value given a zero rate of return.
III. Project X has a higher present value than Project Y, given a positive discount rate.
IV. Project Y has a higher present value than Project X, given a positive discount rate. correct
answers II and III only
Which one of the following statements is correct given the following two sets of project cash
flows?
Year 1: $6000 (PA), $2000 (PB)
Year 2: 0, 3000
, Year 3: 2500, 3000
Year 4: 2500, 3000 correct answers As long as the discount rate is positive, Project B will always
be worth less today than will Project A.
Which one of the following statements related to annuities and perpetuities is correct? correct
answers A perpetuity comprised of $100 monthly payments is worth more than an annuity
comprised of $100 monthly payments, given an interest rate of 12 percent, compounded monthly.
Which of the following statements related to interest rates are correct?
I. Annual interest rates consider the effect of interest earned on reinvested interest payments.
II. When comparing loans, you should compare the effective annual rates.
III. Lenders are required by law to disclose the effective annual rate of a loan to prospective
borrowers. correct answers II and IV only
Which one of the following statements concerning interest rates is correct? correct answers The
effective annual rate equals the annual percentage rate when interest is compounded annually.
Which one of these statements related to growing annuities and perpetuities is correct? correct
answers The present value of a growing perpetuity will decrease if the discount rate is increased.
Which one of the following statements correctly states a relationship? correct answers Time and
present value are inversely related, all else held constant.
Which one of the following compounding periods will yield the smallest present value given a
stated future value and annual percentage rate? correct answers continuous
The entire repayment of which one of the following loans is computed simply by computing a
single future value? correct answers pure discount loan
