ECN 801 Midterm Exam 1 Review Spring/Summer 2026: Chapters 2-4 |
High-Yield Questions & Verified Answers | Toronto Metropolitan
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Midterm 1 Spring/Summer 2024
Chapter 2
1) You deposit $1000 into an account paying 16% nominal interest compounded
monthly. After a year you withdraw $1000. How much is remaining after one year
and a half has passed since the withdrawal (not the deposit) (within $2)?
a) 218.65
b) 222.65
c) 226.65
d) 230.65
e) None of the above
Answer: 1000(1 + 0.16/12)30 – 1000(1 + 0.16/12)18 = 218.65
2) Find the difference in interest earned on $10,000 over thirty years using 8%
compounding interest compared to 8% simple interest (within $50)
a) 66,227
b) 66,327
c) 66,427
d) 66,527
e) None of the above
Answer: 10,000(1.08)30 – [10,000+10,000(0.08)(30)] = 66,626.57
3) Suppose you borrow $10,000 at an 8% interest rate and you begin making payments
of $1000 per year. How much do you owe immediately after your fourth payment
(within $20)?
a) 9060
b) 9100
c) 9140
d) 9180
e) None of the above
, Answer: B1 = 10k(1.08) – 1000 = 9800
B2 = 9800(1.08) – 1000 = 9584
B3 = 9584(1.08) – 1000 = 9350.72
B4 = 9350(0.08) – 1000 = 9098.78
Chapter 3 Part 1
4. You deposit $100 each month into an account paying 12% compounded monthly. After
20 years of deposits, how much do you have saved (within $50)?
a) 98,726
b) 98,826
c) 98,926
d) 99,026
e) None of the above
Answer: F = 100(F/A,1%,20*12) = 100(989.2554) = 98,925.54
5. The interest rate is 8%. You purchase a truck for a delivery business you intend to run for
the next 5 years. The truck costs $50,000. Your business plan is to sell it in 5 years, and you
estimate that the resale value will follow a declining balance depreciation process using a
30% depreciation rate. Your estimate repair costs to start in the third year at $2000 per
year, and operating costs to average $4000 a year for all 5 years. What is the equivalent
annual cost of the business (within $150)?
a) 15,297
b) 15,597
c) 15,897
d) 16,197
e) None of the above
Answer: EAC = 50k(A/P,8%,5) – 50k(0.7)5 (A/F,8%,5) + 2k(F/A,8%,3)(A/F,8%,5) + 4k
= 16,197.30
6. You purchase a house for $1.3 million and take a mortgage for $1.05 million which will be
amortized over 30 years. Your mortgage interest rate is `ixed at 6% compounded monthly
for a 5-year term and you will be making monthly payments. How much do you still owe at
the end of the 5-year term (within $1000)? Use the method that calculates your mortgage
balance based on the payments you have already made (as opposed to the payments you
have remaining).
a) 976,800
b) 978,800
c) 980,800
d) 982,800
e) None of the above
High-Yield Questions & Verified Answers | Toronto Metropolitan
University | PDF Download
Midterm 1 Spring/Summer 2024
Chapter 2
1) You deposit $1000 into an account paying 16% nominal interest compounded
monthly. After a year you withdraw $1000. How much is remaining after one year
and a half has passed since the withdrawal (not the deposit) (within $2)?
a) 218.65
b) 222.65
c) 226.65
d) 230.65
e) None of the above
Answer: 1000(1 + 0.16/12)30 – 1000(1 + 0.16/12)18 = 218.65
2) Find the difference in interest earned on $10,000 over thirty years using 8%
compounding interest compared to 8% simple interest (within $50)
a) 66,227
b) 66,327
c) 66,427
d) 66,527
e) None of the above
Answer: 10,000(1.08)30 – [10,000+10,000(0.08)(30)] = 66,626.57
3) Suppose you borrow $10,000 at an 8% interest rate and you begin making payments
of $1000 per year. How much do you owe immediately after your fourth payment
(within $20)?
a) 9060
b) 9100
c) 9140
d) 9180
e) None of the above
, Answer: B1 = 10k(1.08) – 1000 = 9800
B2 = 9800(1.08) – 1000 = 9584
B3 = 9584(1.08) – 1000 = 9350.72
B4 = 9350(0.08) – 1000 = 9098.78
Chapter 3 Part 1
4. You deposit $100 each month into an account paying 12% compounded monthly. After
20 years of deposits, how much do you have saved (within $50)?
a) 98,726
b) 98,826
c) 98,926
d) 99,026
e) None of the above
Answer: F = 100(F/A,1%,20*12) = 100(989.2554) = 98,925.54
5. The interest rate is 8%. You purchase a truck for a delivery business you intend to run for
the next 5 years. The truck costs $50,000. Your business plan is to sell it in 5 years, and you
estimate that the resale value will follow a declining balance depreciation process using a
30% depreciation rate. Your estimate repair costs to start in the third year at $2000 per
year, and operating costs to average $4000 a year for all 5 years. What is the equivalent
annual cost of the business (within $150)?
a) 15,297
b) 15,597
c) 15,897
d) 16,197
e) None of the above
Answer: EAC = 50k(A/P,8%,5) – 50k(0.7)5 (A/F,8%,5) + 2k(F/A,8%,3)(A/F,8%,5) + 4k
= 16,197.30
6. You purchase a house for $1.3 million and take a mortgage for $1.05 million which will be
amortized over 30 years. Your mortgage interest rate is `ixed at 6% compounded monthly
for a 5-year term and you will be making monthly payments. How much do you still owe at
the end of the 5-year term (within $1000)? Use the method that calculates your mortgage
balance based on the payments you have already made (as opposed to the payments you
have remaining).
a) 976,800
b) 978,800
c) 980,800
d) 982,800
e) None of the above
