Fall 2024 - AFA Final Exam Review

Front

What is the formula for calculating monthly payments on a loan?

Back

M = P[r(1 + r)^n] / [(1 + r)^n – 1], where M is the total monthly payment, P is the principal loan amount, r is the monthly interest rate, and n is the number of payments.

Front

What is simple interest and how is it calculated?

Back

Simple interest is calculated using the formula I = PRT, where I is the interest, P is the principal amount, R is the rate of interest per year, and T is the time in years.

Front

What is straight-line depreciation?

Back

Straight-line depreciation is a method of allocating the cost of a tangible asset over its useful life, calculated as (Cost - Salvage Value) / Useful Life.

Front

How do you determine the total interest paid on a loan?

Back

Total interest paid = (Monthly Payment x Number of Payments) - Principal.

Front

What is the significance of the APR in loans?

Back

APR (Annual Percentage Rate) represents the yearly cost of borrowing, including interest and fees, expressed as a percentage.

Front

What does it mean for a car to lose all marketable value?

Back

It means that the car's resale value decreases to zero over a specified period, indicating complete depreciation.

Front

How do you write a depreciation equation for an asset?

Back

The depreciation equation can be written as y = mx + b, where m is the rate of depreciation per year, and b is the initial value of the asset.

Front

What is the difference between simple interest and compound interest?

Back

Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus any interest that has been added to it.

Front

What is the purpose of a down payment when financing a purchase?

Back

A down payment reduces the amount of the loan needed, lowers monthly payments, and shows the lender that the borrower is financially responsible.

Front

How do you calculate the difference in interest between two loan options?

Back

Calculate the total interest for each loan option and subtract the smaller total from the larger total.