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Sporting Goods charges .85 percent interest per month.What rate of interest are its credit customers actually paying?


A) 11.00 percent
B) 11.92 percent
C) 10.26 percent
D) 9.31 percent
E) 10.69 percent

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

Correct Answer

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Which one of these is a perpetuity?


A) Trust income of $1,200 a year forever
B) Retirement pay of $2,200 a month for 20 years
C) Lottery winnings of $1,000 a month for life
D) Car payment of $260 a month for 60 months
E) Rental payment of $800 a month for one year

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

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Overnight Trucking recently purchased a new truck costing $219,800.The firm financed this purchase at 6.6 percent interest with monthly payments of $2,435.How many years will it take the firm to pay off this debt?


A) 11.04 years
B) 9.22 years
C) 11.60 years
D) 10.23 years
E) 10.42 years

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

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All else held constant,the future value of an annuity will increase if you:


A) decrease both the interest rate and the time period.
B) increase the time period.
C) decrease the present value.
D) decrease the payment amount.
E) decrease the interest rate.

F) C) and E)
G) C) and D)

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At the end of this month,Les will start saving $200 a month for retirement through his company's retirement plan.His employer will contribute an additional $.50 for every $1.00 that he saves.If he is employed by this firm for 30 more years and earns an average of 8.25 percent on his retirement savings,how much will he have in his retirement account 30 years from now?


A) $589,406.19
B) $401,005.25
C) $540,311.67
D) $470,465.70
E) $503,289.01

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

Correct Answer

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Bill just financed a used car through his credit union.His loan requires payments of $275 a month for five years.Assuming that all payments are paid on time,his last payment will pay off the loan in full.What type of loan does Bill have?


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

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

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Julie is borrowing $14,950 to purchase a car.The loan terms are 48 months at 6.95 percent interest,compounded monthly.How much interest,rounded to the nearest dollar,will she pay on this loan if she pays the loan as agreed?


A) $2,338
B) $2,414
C) $1,959
D) $1,806
E) $2,217

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

Correct Answer

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How much money does Suzie need to have in her retirement savings account today if she wishes to withdraw $42,000 a year for 25 years? She expects to earn an average rate of return of 9.75 percent.


A) $426,580.50
B) $407,419.81
C) $401,533.33
D) $385,160.98
E) $388,683.83

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

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You have just won the lottery! You can either receive $6,500 a year for 20 years or $100,000 as a lump sum payment today.What is the interest rate on the annuity option?


A) 2.64 percent
B) 1.68 percent
C) 2.20 percent
D) 2.45 percent
E) 1.95 percent

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

Correct Answer

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Industrial Tools owes you $38,600.This amount is seriously delinquent so you have offered to accept weekly payments for one year at an interest rate of 3 percent to settle this debt in full.What is the amount of each payment?


A) $829.90
B) $818.11
C) $609.18
D) $599.04
E) $753.71

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

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Bulk Purchases just purchased a new warehouse.To finance the purchase,the firm arranged for a 25-year mortgage for 80 percent of the $1,800,000 purchase price.The monthly payment is $10,800.What is the APR? The EAR?


A) 7.67 percent; 7.94 percent
B) 7.67 percent; 8.03 percent
C) 7.72 percent; 7.94 percent
D) 7.72 percent; 8.03 percent
E) 7.75 percent; 8.03 percent

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

Correct Answer

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Assume you pay $24,000 today in exchange for an annuity with monthly payments,an APR of 6.75 percent,and a life of 15 years.What is the payment amount?


A) $319.27
B) $266.67
C) $212.38
D) $203.16
E) $338.09

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

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Given an interest rate of 14.6 percent per year,what is the value at t = 8 of a perpetual stream of $1,250 annual payments that begin t =25?


A) $2,412.02
B) $967.39
C) $3,335.96
D) $2,235.06
E) $1,711.41

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

Correct Answer

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Good Guys will pay you $2,500 a year for 10 years in exchange for $31,300 today.What interest rate will you earn on this annuity?


A) 1.67 percent
B) 3.89 percent
C) 5.50 percent
D) 2.55 percent
E) 2.38 percent

F) All of the above
G) C) and D)

Correct Answer

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Your grandfather started his own business 52 years ago.He opened an investment account at the end of his third month of business and contributed $x.Every three months since then,he faithfully saved another $x.His savings account has earned an average rate of 5.73 percent annually.Today,his account is valued at $289,209.11.How much did your grandfather save every three months assuming he saved the same amount each time?


A) $284.02
B) $328.67
C) $331.09
D) $226.78
E) $262.25

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

Correct Answer

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Christie is buying a new car today and is paying a $500 cash down payment.She will finance the balance at 6.3 percent interest.Her loan requires 36 equal monthly payments of $450 each with the first payment due 30 days from today.Which one of the following statements is correct concerning this purchase?


A) The present value of the car is equal to $500 + (36 ×$450) .
B) The $500 is the present value of the purchase.
C) The car loan is an annuity due.
D) To compute the initial loan amount, you must use a monthly interest rate.
E) The future value of the loan is equal to 36 ×$450.

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

Correct Answer

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Which one of the following has the highest effective annual rate?


A) 6 percent compounded annually
B) 6 percent compounded semiannually
C) 6 percent compounded quarterly
D) 6 percent compounded daily
E) 6 percent compounded every 2 years

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

Correct Answer

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All else held constant,the present value of an annuity will decrease if you:


A) increase the annuity's future value.
B) increase the payment amount.
C) increase the time period.
D) decrease the discount rate.
E) decrease the annuity payment.

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

Correct Answer

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Alexis plans to invest $2,500 a year for 30 years starting at the end of this year.How much will this investment be worth at the end of the 30 years if she earns an average annual rate of return of 9.6 percent?


A) $387,411.26
B) $417,932.11
C) $403,018.90
D) $311,416.67
E) $381,324.92

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

Correct Answer

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Cromwell is acquiring some land for $1,200,000 in exchange for semiannual payments of $75,000 at an interest rate of 6.35 percent.How many years will it take Cromwell to pay for this purchase?


A) 11.00 years
B) 12.00 years
C) 11.35 years
D) 10.47 years
E) 11.80 years

F) B) and E)
G) D) and E)

Correct Answer

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