FIN 301 Exam 2 HW Question with
Correct Answers
Which of the following statements is CORRECT, assuming positive interest rates and
holding other things constant?
A 30-year, $150,000 amortized mortgage will have larger monthly payments than an
otherwise similar 20-year mortgage.
A bank loan's nominal interest rate will always be equal to or greater than its effective
annual rate.
If an investment pays 10% interest, compounded quarterly, its effective annual rate will
be greater than 10%.
Banks A and B offer the same nominal annual rate of interest, but A pays interest
quarterly and B pays semiannually. Deposits in Bank B will provide the higher future
value if you leave your funds on deposit.
The present value of a 5-year, $250 annuity due will be lower than the PV of a similar
ordinary annuity. - Answer-If an investment pays 10% interest, compounded quarterly,
its effective annual rate will be greater than 10%.
You plan to save $320 per month starting today for the next 41 years "just to start the
month off right." You feel that you can earn an interest rate of 10.2 percent compounded
monthly. How much will there be in the account 41 years from today?
1,981,539.41
2,183,227.75
2,405,187.88
2,183,656.43
2384,916.09 - Answer-NPER= 41*12 = 492
Rate= 10.2% / 12
PMT = -320
FV = $2,384,916.09
Annuity Due = $2,384,916.09 * (1 + Rate / Compounded)
= $2,384,916.09 * (1 + 10.2% / 12) = $2,405,187.88
, Your credit card company charges you 1.39 percent per month. What is the EAR on
your credit card?
18.02%
18.92%
15.85%
16.68%
17.35% - Answer-18.02%
EAR
=(1+(Nominal Rate)/ M) ^ M -1
18.02%
=(1+0.0139)^12 -1
One year ago, the Jenkins Family Fun Center deposited $3,900 into an investment
account for the purpose of buying new equipment four years from today. Today, they
are adding another $5,700 to this account. They plan on making a final deposit of
$7,900 to the account next year. How much will be available when they are ready to buy
the equipment, assuming they earn a rate of return of 8 percent?
22,272.95
20,822.44
22,624.39
23,436.89
21,987.96 - Answer-FV = $3,900 (1 + 0.08)5 + $5,700 (1 + 0.08)4 + $7,900 (1 + 0.08)3
= $23,436.89
One year ago, the Jenkins Family Fun Center deposited $3,900 into an investment
account for the purpose of buying new equipment four years from today. Today, they
are adding another $5,700 to this account. They plan on making a final deposit of
$7,900 to the account next year. How much will be available when they are ready to buy
the equipment, assuming they earn a rate of return of 8 percent?
22,272.95
20,822.44
22,624.39
