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WorksheetsBusiness Finance (2)
Total questions: 14
Worksheet time: 14mins
Name
Class
Date
1.
14. Which one of the following is the correct formula for computing the future value of an annuity?
a)
A. C x (Future value factor - 1) / r
b)
B. C x (Future value factor + 1) / r
c)
C. C / (Future value factor - 1) + r
d)
D. C x (Future value factor + 1) x r
2.
16. A credit card has an APR of 18% and charges interest monthly. The effective annual rate on this account will:
a)
A. be less than 18%
b)
B. be less than or equal to 18%
c)
C. equal 18%
d)
D. be greater than 18%
3.
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)
A. amortised loan.
b)
B. blended discounted loan.
c)
C. interest-only loan.
d)
D. pure discount loan.
4.
15. Which one of the following is generally valued as a perpetuity?
a)
A. Short-term bond
b)
B. Long-term bond
c)
C. Non-dividend paying share
d)
D. Preferred stock
5.
13. An increase in the amount of an annuity payment will:
a)
A. have no effect on the present value of the annuity.
b)
B. decrease the present value of the annuity.
c)
C. increase the value of the annuity present value interest factor.
d)
D. increase the future value of the annuity.
6.
12. Which one of the following is an annuity but NOT a perpetuity?
a)
A. $300 every two to three weeks for one year
b)
B. A monthly payment of $425 forever
c)
C. Payments on the first day of each month in varying amounts for ten months
d)
D. $600 on the last day of each month for two years
7.
10. A pure discount loan can be defined as the:
a)
A. present value of a stream of payments to be paid over a period of time in the future.
b)
B. present value of a series of interest payments plus one single principal payment in the future.
c)
C. present value of a single lump sum to be repaid at some time in the future.
d)
D. single lump sum future value of a series of payments over a stated period of time.
8.
9. The effective annual rate is defined as the interest rate that is:
a)
A. compounded at regular intervals throughout the year.
b)
B. equal to a monthly rate multiplied by twelve.
c)
C. computed by multiplying the rate per period by the number of periods per year.
d)
D. expressed as if it were compounded once per year.
9.
8. In Canada and the United Kingdom, a perpetuity is also called a(n):
a)
A. consol.
b)
B. infinite bond.
c)
C. infinity flow.
d)
D. dowry.
10.
7. An annuity where the cash flows continue forever is called a(n):
a)
A. ordinary annuity.
b)
B. annuity due.
c)
C. absolute annuity.
d)
D. perpetuity.
11.
6. An annuity for which the cash flows occur at the beginning of each time period is called a(n):
a)
A. ordinary annuity.
b)
B. beginning annuity.
c)
C. annuity due.
d)
D. perpetuity.
12.
5. A series of cash flows of equal amount, equally spaced in time is called a(n):
a)
A. perpetuity.
b)
B. present value factor.
c)
C. annuity.
d)
D. consol.
13.
4. You have just won a lottery, which offers a choice in how you may receive your prize. If the interest rate is 10% per annum, compounded annually, which of the following prizes has the highest present value?
a)
A. $2 000 000 immediately
b)
B. An ordinary annuity of $300 000 per year for each of the next 10 years (starting one year from now)
c)
C. $3 000 000 at the end of five years
d)
D. A perpetuity of $250 000 per year starting one year from now
14.
3. You have approached Which Bank for a loan to buy a house. The bank offers you a $400 000 loan, repayable in equal monthly instalments at the end of each month for the next 20 years. If the interest rate on the loan is 9% per annum, compounded monthly, your monthly repayment (to the nearest dollar) will be:
a)
A. $1831
b)
B. $3599
c)
C. $2821
d)
D. $4667
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