Quiz OBER Finance 1

What is the main difference between simple interest and compound interest?

• Simple interest is calculated on the principal, while compound interest is calculated on both the principal and accumulated interest.

• Simple interest accumulates interest, while compound interest does not.

• Simple interest is used for long-term loans, while compound interest is used for short-term loans.

• There is no difference between simple and compound interest.

If an investment of $1,000 is made at a 5% annual interest rate for 2 years, what will be the future value (FV) using simple interest?

• $1,050

• $1,100

• $1,102.50

• $1,110

If you invest $1,000 at a 5% annual interest rate, compounded annually for 3 years, what will the future value (FV) be?

• $1,157.63

• $1,150.00

• $1,500.00

• $1,157.00

If you are receiving $200 annually for 5 years at an interest rate of 6%, what is the present value of the annuity?

• $1,000

• $915.74

• $903.43

• $842.47

What does the term "effective annual rate" (EAR) refer to?

• The nominal interest rate for a year.

• The actual interest rate after accounting for compounding periods.

• The rate at which interest is paid monthly.

• The rate used to discount future cash flows.

The nominal interest rate (NIR) is 12%, compounded quarterly. What is the effective annual rate (EAR)?

• 12%

• 12.36%

• 12.55%

• 13%

You want to buy an ordinary annuity that will pay you $4,000 a year for the next 20 years. You expect annual interest rates will be 8 percent over that time period. The maximum price you would be willing to pay for the annuity is closest to

• $32,000.

• $39,272.

• $40,000.

• $80,000.

Which of the following best describes an annuity?

• A lump sum payment made at the end of a term.

• A series of equal payments made at regular intervals.

• A one-time investment that grows over time.

• A bond that matures over a fixed period.

You can use ... to roughly estimate how many years a given sum of money must earn at a given compound annual interest rate in order to double that initial amount.

• Rule 415

• the Rule of 72

• the Rule of 78

• Rule 144

You are considering borrowing $10,000 for 3 years at an annual interest rate of 6%. The loan agreement calls for 3 equal payments, to be paid at the end of each of the next 3 years. (Payments include both principal and interest.) The annual payment that will fully pay off (amortize) the loan is closest to

• $2,674.

• $2,890.

• $3,741.

• $4,020.