FIN380 FINAL FINAL TEST 2026 QUESTIONS WITH
CORRECT ANSWERS GRADED A+
● Mike is looking for a loan. He is willing to pay no more than an effective rate of 8.000%
annually. Which, if any, of the following loans meet Mike's criteria? Loan X: 7.815% nominal
rate, compounded semiannually Loan Y: 7.724% nominal rate, compounded monthly Loan Z:
7.698% nominal rate, compounded weekly a. Y only b. X and Z c. Y and Z d. None of these
meet Mike's criteria.. Answer: B.
● Orlando has a loan with an effective interest rate of 7.918%, compounded annually. Which
of the following must be true? I. In the effective rate formula, n is equal to one. II. The nominal
rate is 7.918%. III. The Federal Funds Rate is static. a. I and II b. II only c. III only d. I, II, and
III. Answer: A.
● The nominal rate on Sarah's loan is 7.250%. If the interest is compounded monthly, what
rate of interest is Sarah actually paying? a. 7.250% b. 7.496% c. 7.510% d. 8.700%. Answer:
B.
● Which factor or factors listed below are external influences on a loan's interest rate? I. the
borrower's credit history II. the length of the loan III. the federal funds rate a. I and II b. I and III
c. II and III d. III only. Answer: D.
● Andrew is choosing between four loans. Loan P has a nominal rate of 10.393%,
compounded daily. Loan Q has a nominal rate of 10.516%, compounded weekly. Loan R has
a nominal rate of 10.676%, compounded monthly. Loan S has a nominal rate of 10.755%,
compounded annually. Which loan will give Andrew the best effective interest rate? a. loan P
b. loan Q c. loan R d. loan S. Answer: D.
● Dave is considering two loans. Loan U has a nominal interest rate of 9.97%, and Loan V
has a nominal interest rate of 10.16%. If Loan U is compounded daily and Loan V is
compounded quarterly, which loan will have the lower effective interest rate, and how much
lower will it be? a. Loan V's effective rate will be 0.3324 percentage points lower than Loan
U's. b. Loan V's effective rate will be 0.1187 percentage points lower than Loan U's. c. Loan
U's effective rate will be 0.5124 percentage points lower than Loan V's. d. Loan U's effective
rate will be 0.0713 percentage points lower than Loan V's.. Answer: D.
● Why do interest rates on loans tend to be higher in a strong economy than in a weak one?
a. Credit markets increase in a strong economy, and with increased demand come increased
,prices. b. A strong economy encourages borrowers to take out very long-term loans, which
have higher interest rates. c. Credit is plentiful in a strong economy, so it is harder to build up
the good credit rating necessary for a low interest rate. d. People in a strong economy have
more money, so they can afford more expensive loans.. Answer: A.
● Tiffany has taken out a loan with a stated interest rate of 8.145%. How much greater will
Tiffany's effective interest rate be if the interest is compounded weekly than if it is
compounded semiannually? a. 0.3340 percentage points b. 0.1659 percentage points c.
0.1681 percentage points d. 0.1234 percentage points. Answer: C.
● When calculating the effective rate of a loan, which statement or statements must be true if
n is equal to 1? I. The nominal rate equals the effective rate. II. The length of the loan is
exactly one year. III. The interest is compounded annually. a. I and III b. II and III c. I only d. III
only. Answer: A.
● Wyatt is paying back a loan with a nominal interest rate of 13.62%. If the interest is
compounded quarterly, how much greater is Wyatt's effective interest rate than his nominal
interest rate? a. 0.96 percentage points b. 0.40 percentage points c. 0.25 percentage points d.
0.71 percentage points. Answer: D.
● Craig is considering four loans. Loan L has a nominal rate of 8.254%, compounded daily.
Loan M has a nominal rate of 8.474%, compounded weekly. Loan N has a nominal rate of
8.533%, compounded monthly. Loan O has a nominal rate of 8.604%, compounded yearly.
Which of these loans will offer Craig the best effective interest rate? a. loan L b. loan M c. loan
N d. loan O. Answer: A.
● Joel takes out a loan with a stated rate of 11.85% interest. If the interest is calculated
weekly, how much greater is Joel's effective rate than his stated rate? a. 0.72 percentage
points b. 0.52 percentage points c. 0.70 percentage points d. 0.67 percentage points. Answer:
A.
● What effect does inflation have on interest rates, and why? a. Inflation decreases interest
rates, because it causes the principal amount to rise. b. Inflation decreases interest rates,
because borrowers in an inflationary economy cannot afford higher interest rates. c. Inflation
increases interest rates, because the money being lent out is more valuable after inflation. d.
Inflation increases interest rates, because lenders must charge more to gain a benefit on
devalued money.. Answer: D.
● RJ has two loans. Loan H has a nominal rate of 5.68%, compounded daily. Loan I has a
nominal rate of 6.33%, compounded monthly. Which loan's effective rate had the greater
increase, relative to its nominal rate, and how much greater is its increase than that of the
, other loan? a. Loan I's increase was 0.03 percentage points greater than Loan H's. b. Loan I's
increase was 0.68 percentage points greater than Loan H's. c. Loan H's increase was 0.16
percentage points greater than Loan I's. d. Loan H's increase was 0.49 percentage points
greater than Loan I's.. Answer: A.
● Why is the Federal Funds Rate so influential on other interest rates? a. The Federal Funds
Rate determines how much consumers can borrow per year. b. The Federal Funds Rate
determines how many loans per year a bank can issue. c. The Federal Funds Rate is only
important to heavy investors. d. The Federal Funds Rate determines at what interest rate
banks borrow money.. Answer: D.
● Melanie is looking for a loan. She is willing to pay no more than an effective rate of 9.955%
annually. Which, if any, of the following loans meet Melanie's criteria? Loan A: 9.265%
nominal rate, compounded weekly Loan B: 9.442% nominal rate, compounded monthly Loan
C: 9.719% nominal rate, compounded quarterly a. B only b. A and C c. A and B d. None of
these fit Melanie's criteria.. Answer: C.
● Anna's bank gives her a loan with a stated interest rate of 10.22%. How much greater will
Anna's effective interest rate be if the interest is compounded daily, rather than compounded
monthly? a. 0.5389 percentage points b. 0.1373 percentage points c. 0.4926 percentage
points d. 0.0463 percentage points. Answer: D.
● Thomas has a loan with a nominal interest rate of 6.4624% and an effective interest rate of
6.4715%. Which of the following must be true? I. The loan has a duration greater than one
year. II. The interest on Thomas's loan is compounded more than once yearly. III. The
economy was strong when Thomas took out the loan. a. I and II b. II only c. I and III d. III only.
Answer: B.
● Why do interest rates on loans tend to be lower in a weak economy than in a strong one? a.
A weak economy tends to have low inflation, so interest rates drop to match. b. Borrowers in a
weak economy are less likely to default on their loans, so interest rates are correspondingly
low. c. In a weak economy there is less demand for credit, so the price drops. d. The strength
or weakness of an economy is determined by interest rates; low interest rates actually cause
a weak economy.. Answer: C.
● Jessica's bank is offering her a loan with a stated rate of 4.90% interest. If the interest is
compounded every two months, what will Jessica really pay for interest? a. 4.90% b. 5.00% c.
5.01% d. 4.96%. Answer: B.
● Brian took eight years to pay off his $71,900 loan. The loan had an interest rate of 8.16%,
compounded quarterly. If Brian paid quarterly and made the same payment every time, how
CORRECT ANSWERS GRADED A+
● Mike is looking for a loan. He is willing to pay no more than an effective rate of 8.000%
annually. Which, if any, of the following loans meet Mike's criteria? Loan X: 7.815% nominal
rate, compounded semiannually Loan Y: 7.724% nominal rate, compounded monthly Loan Z:
7.698% nominal rate, compounded weekly a. Y only b. X and Z c. Y and Z d. None of these
meet Mike's criteria.. Answer: B.
● Orlando has a loan with an effective interest rate of 7.918%, compounded annually. Which
of the following must be true? I. In the effective rate formula, n is equal to one. II. The nominal
rate is 7.918%. III. The Federal Funds Rate is static. a. I and II b. II only c. III only d. I, II, and
III. Answer: A.
● The nominal rate on Sarah's loan is 7.250%. If the interest is compounded monthly, what
rate of interest is Sarah actually paying? a. 7.250% b. 7.496% c. 7.510% d. 8.700%. Answer:
B.
● Which factor or factors listed below are external influences on a loan's interest rate? I. the
borrower's credit history II. the length of the loan III. the federal funds rate a. I and II b. I and III
c. II and III d. III only. Answer: D.
● Andrew is choosing between four loans. Loan P has a nominal rate of 10.393%,
compounded daily. Loan Q has a nominal rate of 10.516%, compounded weekly. Loan R has
a nominal rate of 10.676%, compounded monthly. Loan S has a nominal rate of 10.755%,
compounded annually. Which loan will give Andrew the best effective interest rate? a. loan P
b. loan Q c. loan R d. loan S. Answer: D.
● Dave is considering two loans. Loan U has a nominal interest rate of 9.97%, and Loan V
has a nominal interest rate of 10.16%. If Loan U is compounded daily and Loan V is
compounded quarterly, which loan will have the lower effective interest rate, and how much
lower will it be? a. Loan V's effective rate will be 0.3324 percentage points lower than Loan
U's. b. Loan V's effective rate will be 0.1187 percentage points lower than Loan U's. c. Loan
U's effective rate will be 0.5124 percentage points lower than Loan V's. d. Loan U's effective
rate will be 0.0713 percentage points lower than Loan V's.. Answer: D.
● Why do interest rates on loans tend to be higher in a strong economy than in a weak one?
a. Credit markets increase in a strong economy, and with increased demand come increased
,prices. b. A strong economy encourages borrowers to take out very long-term loans, which
have higher interest rates. c. Credit is plentiful in a strong economy, so it is harder to build up
the good credit rating necessary for a low interest rate. d. People in a strong economy have
more money, so they can afford more expensive loans.. Answer: A.
● Tiffany has taken out a loan with a stated interest rate of 8.145%. How much greater will
Tiffany's effective interest rate be if the interest is compounded weekly than if it is
compounded semiannually? a. 0.3340 percentage points b. 0.1659 percentage points c.
0.1681 percentage points d. 0.1234 percentage points. Answer: C.
● When calculating the effective rate of a loan, which statement or statements must be true if
n is equal to 1? I. The nominal rate equals the effective rate. II. The length of the loan is
exactly one year. III. The interest is compounded annually. a. I and III b. II and III c. I only d. III
only. Answer: A.
● Wyatt is paying back a loan with a nominal interest rate of 13.62%. If the interest is
compounded quarterly, how much greater is Wyatt's effective interest rate than his nominal
interest rate? a. 0.96 percentage points b. 0.40 percentage points c. 0.25 percentage points d.
0.71 percentage points. Answer: D.
● Craig is considering four loans. Loan L has a nominal rate of 8.254%, compounded daily.
Loan M has a nominal rate of 8.474%, compounded weekly. Loan N has a nominal rate of
8.533%, compounded monthly. Loan O has a nominal rate of 8.604%, compounded yearly.
Which of these loans will offer Craig the best effective interest rate? a. loan L b. loan M c. loan
N d. loan O. Answer: A.
● Joel takes out a loan with a stated rate of 11.85% interest. If the interest is calculated
weekly, how much greater is Joel's effective rate than his stated rate? a. 0.72 percentage
points b. 0.52 percentage points c. 0.70 percentage points d. 0.67 percentage points. Answer:
A.
● What effect does inflation have on interest rates, and why? a. Inflation decreases interest
rates, because it causes the principal amount to rise. b. Inflation decreases interest rates,
because borrowers in an inflationary economy cannot afford higher interest rates. c. Inflation
increases interest rates, because the money being lent out is more valuable after inflation. d.
Inflation increases interest rates, because lenders must charge more to gain a benefit on
devalued money.. Answer: D.
● RJ has two loans. Loan H has a nominal rate of 5.68%, compounded daily. Loan I has a
nominal rate of 6.33%, compounded monthly. Which loan's effective rate had the greater
increase, relative to its nominal rate, and how much greater is its increase than that of the
, other loan? a. Loan I's increase was 0.03 percentage points greater than Loan H's. b. Loan I's
increase was 0.68 percentage points greater than Loan H's. c. Loan H's increase was 0.16
percentage points greater than Loan I's. d. Loan H's increase was 0.49 percentage points
greater than Loan I's.. Answer: A.
● Why is the Federal Funds Rate so influential on other interest rates? a. The Federal Funds
Rate determines how much consumers can borrow per year. b. The Federal Funds Rate
determines how many loans per year a bank can issue. c. The Federal Funds Rate is only
important to heavy investors. d. The Federal Funds Rate determines at what interest rate
banks borrow money.. Answer: D.
● Melanie is looking for a loan. She is willing to pay no more than an effective rate of 9.955%
annually. Which, if any, of the following loans meet Melanie's criteria? Loan A: 9.265%
nominal rate, compounded weekly Loan B: 9.442% nominal rate, compounded monthly Loan
C: 9.719% nominal rate, compounded quarterly a. B only b. A and C c. A and B d. None of
these fit Melanie's criteria.. Answer: C.
● Anna's bank gives her a loan with a stated interest rate of 10.22%. How much greater will
Anna's effective interest rate be if the interest is compounded daily, rather than compounded
monthly? a. 0.5389 percentage points b. 0.1373 percentage points c. 0.4926 percentage
points d. 0.0463 percentage points. Answer: D.
● Thomas has a loan with a nominal interest rate of 6.4624% and an effective interest rate of
6.4715%. Which of the following must be true? I. The loan has a duration greater than one
year. II. The interest on Thomas's loan is compounded more than once yearly. III. The
economy was strong when Thomas took out the loan. a. I and II b. II only c. I and III d. III only.
Answer: B.
● Why do interest rates on loans tend to be lower in a weak economy than in a strong one? a.
A weak economy tends to have low inflation, so interest rates drop to match. b. Borrowers in a
weak economy are less likely to default on their loans, so interest rates are correspondingly
low. c. In a weak economy there is less demand for credit, so the price drops. d. The strength
or weakness of an economy is determined by interest rates; low interest rates actually cause
a weak economy.. Answer: C.
● Jessica's bank is offering her a loan with a stated rate of 4.90% interest. If the interest is
compounded every two months, what will Jessica really pay for interest? a. 4.90% b. 5.00% c.
5.01% d. 4.96%. Answer: B.
● Brian took eight years to pay off his $71,900 loan. The loan had an interest rate of 8.16%,
compounded quarterly. If Brian paid quarterly and made the same payment every time, how
