1. The primary difference between simple interest and compound interest is that:

Select one:

a. only compound interest can be solved using a formula

b. simple interest is not concerned with a future value

c. only compound interest is used to solve for a maturity value

d. compound interest involves more than one interest period

2. Interest compounding:

Select one:

a. calculates the present when the future is known

b. calculates interest periodically

c. results in less interest than simple interest

d. is done only once a year

3. Present value is best defined as:

Select one:

a. the amount that must be invested per year and compounded at a specified rate and time to reach a specified present value

b. the amount of a specified future value compounded at a specified rate which can be invested currently

c. all of these are appropriate definitions for present value

d. the amount that must be invested now and compounded at a specified rate and time to reach a specified future value

4. The effective rate is:

Select one:

a. the stated rate

b. the simple rate

c. the true annual rate

d. the true semiannual rate

5. Present value does not:

Select one:

a. find the present dollar amount

b. know the present dollar amount

c. know the future value

d. use the tables

6. When compounding interest, a common mistake is to add the interest to the:

Select one:

a. present value

b. previous principal

c. original principal

d. future value

7. When interest is added to the principal amount and then interest is calculated on this new amount, the process is called:

Select one:

a. compound interest

b. single interest

c. simple interest

d. present value

8. The term "compounding semiannually" means:

Select one:

a. compounding twelve times a year

b. compounding four times a year

c. compounding twice a year

d. none of these

9. When comparing the same period of time and interest rate used to compute simple interest, compound interest results in:

Select one:

a. increased yield for the investor

b. higher interest charges to the investor

c. all of these occur using compound interest

d. an increased maturity date

10. Angelo wants to make an investment today so that he can have $2700 in a year to buy some new kitchen appliances. How much should he set aside now if he can invest the money at 1.6% annually, compounded annually?

Select one:

a. $2327.59

b. $2647.48

c. $1687.50

d. $2657.48

11. Unlike simple interest, compound interest is never found using a:

Select one:

a. formula

b. 365-day year

c. manual compounding

d. 360-day year

13. Provide an appropriate response. The accumulation phase of an annuity is characterized by: I. paying money into the fund II. receiving money from the fund III. the fund balance may earn compound interest

Select one:

a. III only

b. II only

c. I only

d. both I and III

14. Provide an appropriate response. An annuity paid over a guaranteed number of periods is a(n):

Select one:

a. annuity certain

b. annuity due

c. ordinary annuity

d. contingent annuity

15. The primary advantage of a Roth IRA, when compared to a traditional IRA, is that:

Select one:

a. only employees of public education entities can use the

b. qualified distributions are tax free when withdrawn

c. all are true regarding a Roth IRA

d. contributions are tax-deductible

16. Sally Winston is contributing $3200 each year to a Roth IRA. The IRA earns 3.8% per year. How much will she have at the end of 25 years?

Select one:

a. $134,759.40

b. $134,599.40

c. $134,663.40

d. $134,343.40

17. Which of the following is not an example of the use of a sinking fund?

Select one:

a. retire bonds

b. pay an installment loan

c. pay for a new factory

d. pay for equipment replacement

18. The sum of the payments of an annuity plus the interest is called the:

Select one:

a. amount of the annuity

b. payoff amount

c. economic sum

d. financial total

19. A sinking fund:

Select one:

a. does not compound interest

b. provides the funds to meet a future obligation

c. is not a form of an annuity

d. requires a lump sum payment at the beginning

20. An annuity is:

Select one:

a. never used by lotteries

b. a stream of payments

c. not made up of equal payments

d. a lump sum payment

22. Today, most employees that are covered by a company-sponsored pension plan, are covered by a:

Select one:

a. defined benefit plan

b. individual retirement arrangement

c. defined contribution plan

d. Roth IRA

23. All else being equal, an annuity due, when compared to an ordinary annuity, results in a(n):

Select one:

a. equal value

b. value twice the amount of the ordinary annuity

c. lower value

d. higher value

24. The primary difference between an annuity due and an ordinary annuity is: I. when the money is paid into the annuity II. the way the money is paid out of the annuity III. with an annuity due, payment is made at the beginning of the period

Select one:

a. III only

b. both I and III

c. I only

d. II only

25. Which of the following statements is true regarding a sinking fund? I. it is used to accumulate money by the end of a certain period of time to pay off a financial obligation II. it is a payment into an ordinary annuity to yield a desired future value

Select one:

a. both I and II

b. I only

c. neither I nor II

d. II only

26. The desired loan-to-value ratio should not exceed:

Select one:

a. 100%

b. 36%

c. 28%

d. 80%

27. Which of the following is not associated with a mortgage loan?

Select one:

a. collateral

b. real property

c. unsecured debt

d. equity

28. Points represent:

Select one:

a. an additional cost of financing

b. 2 percent of the amount borrowed

c. monthly payments

d. a 3 percent up front payment

29. The desired housing or front-end ratio should not exceed:

Select one:

a. 36%

b. 80%

c. 28%

d. 100%

30. An adjustable rate mortgage means:

Select one:

a. the interest rate cannot change

b. the interest rate can change

c. payments will be larger than on a fixed rate mortgage

d. the interest rate is fixed for the first five year

31. An amortization schedule shows the:

Select one:

a. balance of interest outstanding

b. increase in the loan outstanding

c. increase in the principal

d. payment broken down into principal and interest

32. The process of amortization includes which of the following?

Select one:

a. a specific length of time

b. equal payments

c. both equal payments and a specific length of time

d. variable rates

33. The desired debt-to-income or back-end ratio should not exceed:

Select one:

a. 36%

b. 100%

c. 28%

d. 80%

34. Solve the problem. Use a formula to find the monthly payment on a home mortgage of $93,200 at 4.884% interest for 15 years.

Select one:

a. $256.06

b. $352.08

c. $731.40

d. $3796.13

35. The repayment of a loan in equal installments that are applied to principal and interest over a specific period of time is called:

Select one:

a. conventional mortgage

b. adjustable rate mortgage

c. amortization

d. constant mortgage