Corp.fin, Test 2solultion

# Corp.fin, Test 2solultion - Test 2 Name 1 If you have a...

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Test 2 Name __________________ 1. If you have a choice to earn simple interest on \$10,000 for three years at 8% or annually compound interest at 7.5% for three years which one will pay more and by how much? a. Simple interest by \$50.00 b. Compound interest by \$22.97 c. Compound interest by \$150.75 d. Compound interest by \$150.00 e. None of the above. Solution: Simple Interest = \$10,000 (0.08)(3) = \$2,400; Compound Interest = \$10,000(1.075) 3 = \$2,422.97; Difference = \$2,422.97 - \$2,400 = \$22.97 2. You are comparing two annuities which offer monthly payments for ten years. Both annuities are identical with the exception of the payment dates. Annuity A pays on the first of each month while annuity B pays on the last day of each month. Which one of the following statements is correct concerning these two annuities? 3. An annuity stream where the payments occur forever is called a(n):

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4. Which one of the following statements concerning the annual percentage rate is correct? interest rate is compounded quarterly. laws.
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