CHAPTER 5-6

An ordinary annuity is best defined by which one of the following?

• equal payments paid at regular intervals over a stated time period

• increasing payments paid for a definitive period of time

• increasing payments paid forever

• equal payments paid at regular intervals of time on an ongoing basis

• unequal payments that occur at set intervals for a limited period of time

Which one of the following accurately defines a perpetuity?

• unending equal payments paid at equal time intervals

• a limited number of equal payments paid in even time increments

• payments of equal amounts that are paid irregularly but indefinitely

• varying amounts that are paid at even intervals forever

• unending equal payments paid at either equal or unequal time intervals

The interest rate that is quoted by a lender is referred to as which one of the following?

• stated interest rate

• compound rate

• effective annual rate

• simple rate

• common rate

A monthly interest rate expressed as an annual rate would be an example of which one of the following rates?

• effective annual rate

• stated rate

• discounted annual rate

• periodic monthly rate

• consolidated monthly rate

What is the interest rate charged per period multiplied by the number of periods per year called?

• annual percentage rate

• effective annual rate

• periodic interest rate

• compound interest rate

• daily interest rate

Which one of the following statements concerning interest rates is correct?

• The effective annual rate equals the annual percentage rate when interest is compounded annually

• Savers would prefer annual compounding over monthly compounding

• The effective annual rate decreases as the number of compounding periods per year increases

• Borrowers would prefer monthly compounding over annual compounding

• For any positive rate of interest, the effective annual rate will always exceed the annual percentage rate

Which one of the following statements correctly states a relationship?

• Time and present value are inversely related, all else held constant

• Time and future values are inversely related, all else held constant

• Interest rates and time are positively related, all else held constant

• An increase in the discount rate increases the present value, given positive rates

• An increase in time increases the future value given a zero rate of interest

A loan where the borrower receives money today and repays a single lump sum on a future date is called a(n) _____ loan?

• pure discount

• amortized

• continuous

• balloon

• interest-only

Which one of the following terms is used to describe a loan that calls for periodic interest payments and a lump sum principal payment?

• interest-only loan

• amortized loan

• modified loan

• balloon loan

• interest-only loan

Which one of the following terms is used to describe a loan wherein each payment is equal in amount and includes both interest and principal?

• amortized loan

• modified loan

• balloon loan

• pure discount loan

• interest-only loan