FIN 304 Fall 24 - Quiz #2 (9/12)

Travis is buying a car and will finance it with a loan that requires monthly payments of $265 for the next four years. His car payments can be described by which one of the following terms?

• Perpetuity
• Annuity
• Consol
• Lump sum
• Present value

Leo pays 1 percent per month interest on his credit card account. When his monthly rate is multiplied by 12, the resulting answer is referred to as the:

• annual percentage rate (APR).
• compounded annual rate (CAR).
• effective annual rate (EAR).
• perpetual equivalent rate (PER).
• simple interest rate (SIR).

You are comparing two annuities that offer monthly payments of $2,500 for five years and pay 0.75 percent interest per month. Annuity A will pay you on the first of each month, while annuity B will pay you on the last day of each month. Which one of the following statements is correct concerning these two annuities? (You have 90 seconds.)

• These two annuities have equal present values but unequal futures values at the end of year five.
• These two annuities have equal present values as of today and equal future values at the end of year five.
• Annuity B is an annuity due.
• Annuity A has a smaller future value than annuity B.
• Annuity B has a smaller present value than annuity A.

RB Farworth will pay you $2,500 a year for 15 years in exchange for $25,000 today. What interest rate will you earn on this annuity?

• 6.23%
• 5.56%
• 4.23%
• 4.56%
• 5.15%

Suppose you are going to receive $13,500 per year for five years. The appropriate interest rate is 7 percent. What is the present value of the payments if the payments are an annuity due?

• $59,227
• $55,353
• $34,426
• $48,934
• $61,932