Business Finance (2)

14. Which one of the following is the correct formula for computing the future value of an annuity?

• A. C x (Future value factor - 1) / r
• B. C x (Future value factor + 1) / r
• C. C / (Future value factor - 1) + r
• D. C x (Future value factor + 1) x r

16. A credit card has an APR of 18% and charges interest monthly. The effective annual rate on this account will:

• A. be less than 18%
• B. be less than or equal to 18%
• C. equal 18%
• D. be greater than 18%

17. Today you borrowed $1000 from your bank for five years at 8% interest. The loan requires that you make a payment of $80 one year from today. Based on this information, it appears that you have a(n):

• A. amortised loan.
• B. blended discounted loan.
• C. interest-only loan.
• D. pure discount loan.

15. Which one of the following is generally valued as a perpetuity?

• A. Short-term bond
• B. Long-term bond
• C. Non-dividend paying share
• D. Preferred stock

13. An increase in the amount of an annuity payment will:

• A. have no effect on the present value of the annuity.
• B. decrease the present value of the annuity.
• C. increase the value of the annuity present value interest factor.
• D. increase the future value of the annuity.

12. Which one of the following is an annuity but NOT a perpetuity?

• A. $300 every two to three weeks for one year
• B. A monthly payment of $425 forever
• C. Payments on the first day of each month in varying amounts for ten months
• D. $600 on the last day of each month for two years

10. A pure discount loan can be defined as the:

• A. present value of a stream of payments to be paid over a period of time in the future.
• B. present value of a series of interest payments plus one single principal payment in the future.
• C. present value of a single lump sum to be repaid at some time in the future.
• D. single lump sum future value of a series of payments over a stated period of time.

9. The effective annual rate is defined as the interest rate that is:

• A. compounded at regular intervals throughout the year.
• B. equal to a monthly rate multiplied by twelve.
• C. computed by multiplying the rate per period by the number of periods per year.
• D. expressed as if it were compounded once per year.

8. In Canada and the United Kingdom, a perpetuity is also called a(n):

• A. consol.
• B. infinite bond.
• C. infinity flow.
• D. dowry.

7. An annuity where the cash flows continue forever is called a(n):

• A. ordinary annuity.
• B. annuity due.
• C. absolute annuity.
• D. perpetuity.