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You have an outstanding loan with an EAR of 14.6 percent.What is the APR if interest is compounded monthly?


A) 13.48 percent
B) 13.71 percent
C) 14.60 percent
D) 15.41 percent
E) 15.62 percent

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

Correct Answer

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When comparing savings accounts,you should select the account that has the:


A) lowest annual percentage rate.
B) highest annual percent rate.
C) highest stated rate.
D) lowest effective annual rate.
E) highest effective annual rate.

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

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The Food Store is planning a major expansion for four years from today.In preparation for this,the company is setting aside $35,000 each quarter,starting today,for the next four years.How much money will the firm have when it is ready to expand if it can earn an average of 6.25 percent on its savings?


A) $528,409.29
B) $540,288.16
C) $610,411.20
D) $640,516.63
E) $662,009.14

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

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You want to purchase a new condominium that costs $329,000.Your plan is to pay 20 percent down in cash and finance the balance over 25 years at 6.25 percent.What will be your monthly mortgage payment?


A) $1,736.25
B) $1,833.33
C) $1,908.16
D) $2,221.43
E) $2,406.11

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

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Steve is considering investing $3,600 a year for 40 years.How much will this investment be worth at the end of the 40 years if he earns an average annual rate of return of 11.6 percent? Assume Steve invests his first payment of the end of this year.


A) $1,887,411.26
B) $1,919,200.08
C) $2,103,018.90
D) $2,311,416.67
E) $2,471,685.70

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

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Today is your 21st birthday and you just decided to start saving money so you can retire early.Thus,you are going to save $500 a month starting one month from now.You plan to retire as soon as you can accumulate $1 million.If you can earn an average of 8 percent on your savings,how old will you be when you retire?


A) 33.39 years old
B) 42.87 years old
C) 54.39 years old
D) 64.71 years old
E) 63.87 years old

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

Correct Answer

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The manager of Gloria's Boutique has approved Carla's application for credit.The maximum payment that has been approved is $65 a month for 24 months.The APR is 15.7 percent.What is the maximum initial purchase that Carla can make given this credit approval?


A) $1,288.90
B) $1,300.00
C) $1,331.42
D) $1,350.00
E) $1,428.46

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

Correct Answer

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Today,you are borrowing money from your local bank.The loan is to be repaid in one lump sum payment of $15,000 one year from now.How much money are you borrowing today if the APR is 10.6 percent?


A) $11,899.48
B) $12,550.00
C) $13,562.39
D) $13,762.14
E) $14,037.97

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

Correct Answer

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Which one of the following qualifies as an annuity?


A) Weekly grocery bill
B) Clothing purchases
C) Car repairs
D) Auto loan payment
E) Medical bills

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

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A 4-year annuity of eight $6,200 semiannual payments will begin 6 years from now,with the first payment coming 6.5 years from now.If the discount rate is 7 percent compounded semiannually,what is the value of this annuity 4 years from now?


A) $37,139.58
B) $38,399.20
C) $40,687.14
D) $41,811.67
E) $42,618.52

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

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How much money does Suzie need to have in her retirement savings account today if she wishes to withdraw $25,000 a year for 30 years? She expects to earn an average rate of return of 13 percent.


A) $176,800.16
B) $180,419.81
C) $181,533.33
D) $185,160.98
E) $187,391.34

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

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Eric is considering an investment that will pay $5,000 a year for seven years,starting one year from today.How much should she pay for this investment if she wishes to earn a 13 percent rate of return?


A) $17,899.08
B) $18,023.88
C) $20,186.75
D) $22,113.05
E) $23,749.24

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

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Janis just won a scholarship that will pay her $500 a month,starting today,and continuing for the next 48 months.Which one of the following terms best describes these scholarship payments?


A) Ordinary annuity
B) Annuity due
C) Consol
D) Ordinary perpetuity
E) Perpetuity due

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

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First Trust offers personal loans at 7.7 percent compounded monthly.Second Bank offers similar loans at 7.75 percent compounded semiannually.Which one of the following statements is correct concerning these loans?


A) The First Trust loan has an effective rate of 7.98 percent.
B) The Second Bank loan has an effective rate of 8.03 percent.
C) The annual percentage rate for the Second Bank loans is 7.90 percent.
D) Borrowers should prefer the loans offered by Second Bank.
E) First Trust offers the best deal on loans.

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

Correct Answer

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Anne plans to save $40 a week for the next five years.She expects to earn 3 percent for the first two years and 5 percent for the last three years.How much will her savings be worth at the end of the five years?


A) $10,215.60
B) $10,684.29
C) $10,983.58
D) $11,014.88
E) $11,708.15

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

Correct Answer

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You want to borrow $40,000 from your local bank to buy a new sailboat.You can afford to make monthly payments of $775,but no more.Assuming monthly compounding,what is the highest rate you can afford on a 60-month APR loan?


A) 5.9 percent
B) 6.0 percent
C) 6.1 percent
D) 6.2 percent
E) 7.2 percent

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

Correct Answer

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Lee pays 1 percent per month interest on his credit card account.When his monthly rate is multiplied by 12,the resulting answer is referred to as the:


A) annual percentage rate.
B) compounded rate.
C) effective annual rate.
D) perpetual rate.
E) simple rate.

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

Correct Answer

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Today,you are borrowing $13,800 to purchase a car.What will be your monthly payment amount if the loan is for four years at 7.5 percent interest?


A) $298.40
B) $321.150
C) $333.67
D) $380.24
E) $400.10

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

Correct Answer

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You have just purchased a new warehouse.To finance the purchase,you've arranged for a 25-year mortgage for 80 percent of the $1,800,000 purchase price.The monthly payment on this loan will be $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 D)
G) A) and E)

Correct Answer

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Identify four ways that you can use annuity computations in your everyday life.

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