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1. An ordinary annuity is best defined by which one of the following?
A. increasing payments paid for a definitive period of time
B. increasing payments paid forever
C. equal payments paid at regular intervals over a stated time period
D. equal payments paid at regular intervals of time on an ongoing basis
E. unequal payments that occur at set intervals for a limited period of time
2. Which one of the following accurately defines a perpetuity?
A. a limited number of equal payments paid in even time increments
B. payments of equal amounts that are paid irregularly but indefinitely
C. varying amounts that are paid at even intervals forever
D. unending equal payments paid at equal time intervals
E. unending equal payments paid at either equal or unequal time intervals
3. A monthly interest rate expressed as an annual rate would be an example of which one
of the following rates?
A. stated rate
B. discounted annual rate
C. effective annual rate
D. periodic monthly rate
E. consolidated monthly rate
4. What is the interest rate charged per period multiplied by the number of periods per
year called?
A. effective annual rate
B. annual percentage rate
C. periodic interest rate
D. compound interest rate
E. daily interest rate
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View Full Document 5. A loan where the borrower receives money today and repays a single lump sum on a
future date is called a(n) _____ loan.
A. amortized
B. continuous
C. balloon
D. pure discount
E. interestonly
6. Which one of the following statements concerning interest rates is correct?
A. Savers would prefer annual compounding over monthly compounding.
B. The effective annual rate decreases as the number of compounding periods per year
increases.
C. The effective annual rate equals the annual percentage rate when interest is
compounded annually.
D. Borrowers would prefer monthly compounding over annual compounding.
E. For any positive rate of interest, the effective annual rate will always exceed the annual
percentage rate.
7. Phil can afford $180 a month for 5 years for a car loan. If the interest rate is 8.6
percent, how much can he afford to borrow to purchase a car?
A. $7,750.00
B. $8,348.03
C. $8,752.84
D. $9,266.67
E. $9,400.00
8. Your great aunt left you an inheritance in the form of a trust. The trust agreement states
that you are to receive $3,600 on the first day of each year, starting immediately and
continuing for 20 years. What is the value of this inheritance today if the applicable
discount rate is 6.75 percent?
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This note was uploaded on 10/25/2011 for the course ECON 393 taught by Professor D during the Spring '10 term at Rutgers.
 Spring '10
 D

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