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Mill Stone Bakery needs $210,000 today to fund a new project. The project will not produce any cash flows for 2 years and thus the firm agreed to a 2-year, pure discount loan at 8.6 percent interest. How much will the firm owe on this loan at the time it must be repaid?


A) $228,060.00
B) $237,540.21
C) $240,860.00
D) $246,120.00
E) $247,673.16

F) A) and B)
G) A) and C)

Correct Answer

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Jack's Fried Chicken just took out a 7 percent interest-only loan of $50,000 for 3 years. Payments are to be made at the end of each year. What is the amount of the payment that will be due at the end of year 3?


A) $19,052.58
B) $20,166.67
C) $50,000.00
D) $53,500.00
E) $61,252.15

F) C) and E)
G) C) and D)

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The Men's Store charges 1.5 percent interest per month. What rate of interest are its credit customers actually paying?


A) 18.00 percent
B) 18.92 percent
C) 19.56 percent
D) 19.90 percent
E) 20.23 percent

F) B) and D)
G) C) and D)

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Which one of the following has the highest effective annual rate?


A) 6 percent compounded annually
B) 6 percent compounded semi-annually
C) 6 percent compounded quarterly
D) 6 percent compounded monthly
E) All the other answers have the same effective annual rate.

F) A) and B)
G) B) and E)

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Katie's Dinor spent $84,000 to refurbish its current facility. The firm borrowed 80 percent of the refurbishment cost at 9.2 percent interest for 5 years. What is the amount of each monthly payment?


A) $1,108.91
B) $1,282.16
C) $1,333.33
D) $1,401.49
E) $1,487.06

F) C) and D)
G) All of the above

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The Furniture Hut is offering a bedroom suite for $1,999. The credit terms are 60 months at $50 per month. What is the interest rate on this offer?


A) 16.33 percent
B) 16.50 percent
C) 16.65 percent
D) 17.15 percent
E) 17.30 percent

F) All of the above
G) C) and D)

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Billingsley, Inc. is borrowing $60,000 for 5 years at an APR of 8 percent. The principal is to be repaid in equal annual payments over the life of the loan with interest paid annually. Payments will be made at the end of each year. What is the total payment due for year 3 of this loan?


A) $13,920
B) $14,880
C) $15,220
D) $15,840
E) $16,800

F) A) and B)
G) A) and C)

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You want to buy a new sports car from Roy's Cars for $51,800. The contract is in the form of a 48-month annuity due at a 9.2 percent APR. What will your monthly payment be?


A) $1,284.13
B) $1,309.29
C) $1,345.70
D) $1,352.98
E) $1,384.32

F) B) and D)
G) All of the above

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The Solvent Insurance Co. will pay you $2,500 a year for 20 years in exchange for $30,000 today. What interest rate will you earn on this annuity?


A) 5.40 percent
B) 5.45 percent
C) 5.50 percent
D) 5.55 percent
E) 5.60 percent

F) A) and E)
G) B) and D)

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Julie is borrowing $12,800 to purchase a car. The loan terms are 36 months at 7.5 percent interest. How much interest will she pay on this loan if she pays the loan as agreed? Round your answer to the nearest whole dollar.


A) $1,338
B) $1,414
C) $1,459
D) $1,506
E) $1,534

F) A) and D)
G) A) and E)

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A credit card has an annual percentage rate of 12.9 percent and charges interest monthly. The effective annual rate on this account:


A) will be less than 12.9 percent.
B) can either be less than or equal to 12.9 percent.
C) is 12.9 percent.
D) can either be greater than or equal to 12.9 percent.
E) will be greater than 12.9 percent.

F) D) and E)
G) None of the above

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Currently, you owe the bank $9,800 for a car loan. The loan has an interest rate of 7.75 percent and monthly payments of $310. Your financial situation recently changed such that you can no longer afford these payments. After talking with your banker and explaining the situation, he has agreed to lower the monthly payments to $225 while keeping the interest rate at 7.75 percent. How much longer will it take you to repay this loan than you had originally planned?


A) 12.29 months
B) 14.47 months
C) 15.84 months
D) 17.19 months
E) 19.90 months

F) A) and E)
G) All of the above

Correct Answer

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A loan has an APR of 8.5 percent and an EAR of 8.5 percent. Given this, the loan must:


A) have a one-year term.
B) have a zero percent interest rate.
C) charge interest annually.
D) must be an interest-only loan.
E) require the accrued interest be paid in full with each monthly payment.

F) A) and B)
G) All of the above

Correct Answer

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Jodie's Fashions has just signed a $2.2 million contract. The contract calls for a payment of $0.6 million today, $0.8 million one year from today, and $0.8 million two years from today. What is this contract worth today if the firm can earn 7.2 percent on its money?


A) $2,038,616.67
B) $2,042,414.79
C) $2,108,001.32
D) $2,124,339.07
E) $2,202,840.91

F) C) and D)
G) A) and B)

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Which of the following characteristics apply to a perpetuity? I. Constant cash flow dollar amount II) Unequal cash flow dollar amount III) Limited time period IV) Infinite time period


A) I and III only
B) I and IV only
C) II and III only
D) II and IV only
E) I plus either III or IV

F) C) and D)
G) A) and E)

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Friendly Credit Corp. wants to earn an effective annual return on its consumer loans of 13 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required by law to report to potential borrowers?


A) 11.98 percent
B) 12.22 percent
C) 13.00 percent
D) 13.57 percent
E) 13.88 percent

F) B) and C)
G) C) and D)

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Kurt wants to have $25,000 in an investment account 4 years from now. The account will pay 0.2 percent interest per month. If he saves money every month, starting one month from now, how much will he have to save each month to reach his goal?


A) $496.75
B) $497.03
C) $497.75
D) $501.03
E) $502.14

F) None of the above
G) D) and E)

Correct Answer

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You want to buy a new sports coupe for $84,600, and the finance office at the dealership has quoted you a 7.1 percent APR loan for 48 months to buy the car. What will your monthly payments be? What is the effective annual rate on this loan?


A) $2,017.84; 7.24 percent
B) $2,017.84; 7.29 percent
C) $2,017.84; 7.34 percent
D) $2,029.78; 7.29 percent
E) $2,029.78; 7.34 percent

F) None of the above
G) A) and E)

Correct Answer

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The Egg House just borrowed $260,000 to build a new restaurant. The loan terms call for equal annual payments at the end of each year. The loan is for 15 years at an APR of 8 percent. How much of the first annual payment will be used to reduce the principal balance?


A) $8,311.62
B) $9,575.68
C) $10,211.08
D) $10,554.60
E) $11,420.90

F) C) and D)
G) A) and D)

Correct Answer

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What is the future value of $20 a week for 10 years at 6 percent interest? Assume the first payment occurs at the end of this week.


A) $14,239.14
B) $14,361.08
C) $14,727.15
D) $15,003.14
E) $15,221.80

F) A) and B)
G) A) and C)

Correct Answer

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