QUIZ - Sinking Funds, Amort and Annuities

Most of the interest on a loan is paid

• at the beginning of the term

• in equal amounts throughout the term

• at the end of the term

• none of the above

If you have a 10 year account that is compounded quarterly, what will n*t be in your compound interest formula?

• 10

• 40

• 120

If a friend of yours had never heard of amortization before and asked you to explain how loan payments work, what would you say?

• Amortization is a scheduled breakdown of how much you'll pay every month (fixed) to repay a loan. It shows what portion of your payment is going to interest an principal each month.

• Every month, you pay the interest due first, and then all remaining portions of your payment goes toward paying down the principal balance

• Both statements are true.

Wingfield school will need to replace a number of old desks in 6 years' time. The principal has calculated that the new desks will cost $15,000. The school establishes a sinking fund to pay for the new desks at an interest at a rate of 4.8% annually, compounded monthly.

How much money should the school save every month so that the sinking fund will have enough money to cover the cost of the desks?

• $25.49

• $180.18

• $184,838.58

• none of the above

You have a car loan with a balance of $21,000 with payments of $466 per month. If the interest rate on the loan is 4.5%, what portion of the payment will go to paying the interest?

• $78.75

• $387.25

You have a car loan with a balance of $21,000 with payments of $466 per month. If the interest rate on the loan is 4.5%, what portion of the payment will go to paying down the principal?

• $78.75

• $387.25

The loan principal of an auto loan has been paid down to $49,004.20. If the annual interest rate is 4.5 % and the payment is $518.19 per month, what part of the next payment is the principal portion?

• $334.42

• $183.77

• $327.22

• $185.02

Jason deposits $2,000 semi yearly into a retirement account. The account pays 2% compounded semi annually. How much money will be in the account after 30 years?

• $78,268.97

• $126,498.08

• $163,339.34

• $124,498.10

Your company estimates it will have to replace a piece of equipment at a cost of $800,000 in 5 years. What should each regular quarterly payment be (to meet this future value in 5 yrs) if the account pays 3.6% compounded quarterly?

• $957,001.03 per quarter

• $36,687.19 per quarter

• $95,700.10 per quarter

• You can't do this, it is a negative number

You desire to have $200,000 in an IRA by the time you retire in 25 years. If the annual interest rates (compounded monthly) are currently 6%, how much will you need to put into your IRA each month to meet this goal?

• $288.60

• $43.98

• $2,886.03

• none of the above