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You just received a loan offer from Friendly Loans.The company is offering you $5,000 at 14.3 percent interest.The monthly payment is only $100.If you accept this offer,how long will it take you to pay off the loan?


A) 5.84 years
B) 6.37 years
C) 6.80 years
D) 7.33 years
E) 7.59 years

F) A) and D)
G) D) and E)

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What is the effective annual rate of 6.5 percent compounded quarterly?


A) 6.02 percent
B) 6.29 percent
C) 6.54 percent
D) 6.66 percent
E) 6.83 percent

F) A) and E)
G) None of the above

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You want to save $200 a month for the next 24 years and hope to earn an average rate of return of 11 percent.How much more will you have at the end of the 24 years if you invest your money at the beginning of each month rather than the end of each month?


A) $1,611.29
B) $1,807.70
C) $2,238.87
D) $2,569.14
E) $2,707.27

F) A) and D)
G) A) and C)

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Explain the similarities and differences among an ordinary annuity,an annuity due,and a perpetuity.

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Similarities: Both annuities and perpetu...

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The Insolvent Insurance Co.will pay you $2,500 a year for 10 years in exchange for $30,000 today.What interest rate will you earn on this annuity?


A) -3.18 percent
B) 3.18 percent
C) 5.50 percent
D) 5.55 percent
E) 5.60 percent

F) B) and C)
G) B) and D)

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Uptown Insurance offers an annuity due with semiannual payments for 25 years at 6 percent interest.The annuity costs $200,000 today.What is the amount of each annuity payment?


A) $7,546.70
B) $7,600.00
C) $7,773.10
D) $7,800.00
E) $7,856.25

F) C) and D)
G) A) and D)

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A recent alumnus of your university gifted money to the school to fund annual scholarships for students in need.The school expects to earn an average rate of return of 5.5 percent and distribute $50,000 annually in scholarships.What was the amount of the gift?


A) $384,090.91
B) $485,293.05
C) $615,384.62
D) $658,929.38
E) $909,090.91

F) A) and C)
G) A) and B)

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What is the effective annual rate of 14.9 percent compounded quarterly?


A) 14.48 percent
B) 14.67 percent
C) 15.23 percent
D) 15.54 percent
E) 15.75 percent

F) A) and B)
G) A) and C)

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Today,you are purchasing a 20-year,6 percent annuity at a cost of $120,000.The annuity will pay annual payments starting 1 year from today.What is the amount of each payment?


A) $9,511.08
B) $10,462.15
C) $10,754.40
D) $11,013.20
E) $12,208.19

F) A) and B)
G) B) and C)

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Your grandparents would like to establish a trust fund that would pay annual payments to you and your heirs of $100,000 a year forever.How much do your parents need to deposit into this trust fund today to achieve their goal if the fund can earn 6 percent interest?


A) $678,342.13
B) $700,000.00
C) $1,413,435.76
D) $1,620,975.32
E) $1,666,666.67

F) B) and C)
G) A) and B)

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Capstone Investments is considering a project that will produce cash inflows of $11,000 in year 1,$24,000 in year 2,and $36,000 in year 3.What is the present value of these cash inflows if the company assigns the project a discount rate of 12 percent?


A) $41,997.60
B) $46,564.28
C) $54,578.17
D) $54,868.15
E) $63,494.54

F) B) and D)
G) A) and B)

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You want to buy a new sports coupe for $84,600,and the finance office at the dealership has quoted you a 7.1 percent APR loan for 48 months to buy the car.What will your monthly payments be? What is the effective annual rate on this loan?


A) $2,017.84; 7.24 percent
B) $2,017.84; 7.29 percent
C) $2,017.84; 7.34 percent
D) $2,029.78; 7.29 percent
E) $2,029.78; 7.34 percent

F) None of the above
G) A) and E)

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If you put up $46,000 today in exchange for a 6.75 percent 15-year annuity,what will the annual cash flow be?


A) $4,519.27
B) $4,666.67
C) $4,971.10
D) $5,203.16
E) $5,338.09

F) A) and B)
G) B) and E)

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Letitia borrowed $6,000 from her bank two years ago.The loan term is four years.Each year,she must repay the bank $1,500 plus the annual interest.Which type of loan does she have?


A) Amortized
B) Blended discount
C) Interest-only
D) Pure discount
E) Complex

F) A) and E)
G) A) and C)

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A credit card has a stated interest rate of 14.56 percent.What is the APR if interest is compounded monthly?


A) 13.09 percent
B) 13.46 percent
C) 13.90 percent
D) 14.56 percent
E) 14.82 percent

F) A) and C)
G) A) and D)

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Currently,you owe the bank $9,800 for a car loan.The loan has an interest rate of 7.75 percent and monthly payments of $310.Your financial situation recently changed such that you can no longer afford these payments.After talking with your banker and explaining the situation,he has agreed to lower the monthly payments to $225 while keeping the interest rate at 7.75 percent.How much longer will it take you to repay this loan than you had originally planned?


A) 12.29 months
B) 14.47 months
C) 15.84 months
D) 17.19 months
E) 19.90 months

F) B) and C)
G) A) and E)

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Turntable Industrial,Inc.owes your firm $138,600.This amount is seriously delinquent so your firm has offered to arrange a payment plan in the hopes that it might at least collect a portion of this receivable.Your firm's offer consists of weekly payments for one year at an interest rate of 3 percent.What is the amount of each payment?


A) $2,229.90
B) $2,318.11
C) $2,409.18
D) $2,599.04
E) $2,706.33

F) C) and E)
G) A) and C)

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Scott borrowed $2,500 today.The loan agreement requires him to repay $2,685 in one lump sum payment one year from now.This type of loan is referred to as a(n) :


A) interest-only loan.
B) pure discount loan.
C) quoted rate loan.
D) compound interest loan.
E) amortized loan.

F) A) and D)
G) A) and C)

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Consider an ordinary annuity and the variables that are related to that annuity.For each of the following sets of variables,identify whether the relationship between the two variables is direct (D)or inverse (I).Assume all other variables are held constant.

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Which one of the following statements is correct?


A) The APR is equal to the EAR for a loan that charges interest monthly.
B) The EAR is always greater than the APR.
C) The APR on a monthly loan is equal to (1 + monthly interest rate) 12 - 1.
D) The APR is the best measure of the actual rate you are paying on a loan.
E) The EAR, rather than the APR, should be used to compare both investment and loan options.

F) C) and D)
G) A) and D)

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