An example of an annuity is a stream of payments of $4,000 each at the end of every year for 20 years.

	True
	False

You are borrowing $6,000 today. The loan is an amortized 6-year loan with an APR of 8 percent. The loan requires that $1,000 of the principal amount be repaid each year. Payments are to be made annually. What is the amount of the interest for the third year of the loan?

	$80
	$160
	$240
	$320
	$400

In order to compare different investment opportunities (each with the same risk) with interest rates reported in different manners you should:

	convert each interest rate to an effective annual rate.
	convert each interest rate to a monthly nominal rate.
	convert each interest rate to an annual nominal rate.
	compare the published annual rates.
	convert each interest rate to an APR.

You borrowed $2,500 at 9.2 percent compounded annually. Your payments are $500 at the end of each year. How many years will you make payments on the loan?

	5 years
	6 years
	7 years
	8 years
	9 years

You are going to withdraw $600 at the end of each year for the next four years from an account that pays interest at a rate of 6 percent compounded annually. The account balance will reduce to zero when the last withdrawal is made. How much interest will you earn on the account over the four-year life?

	$180.00
	$240.00
	$320.94
	$420.19
	$433.33

You have $1,500 to invest. You have 2 choices: savings account A, which earns 8.75 percent compounded annually or savings account B, which earns 8.50 percent compounded monthly. Which account should you choose and why?

	because it has a higher effective annual rate
	because it has the higher stated rate
	because it has a higher effective annual rate
	because the quoted rate is higher
	because it has the higher quoted rate

In almost all present and future value computations, it is implicitly assumed that the cash flows occur at the beginning of each period.

	True
	False

What is the effective annual rate of 7 percent compounded quarterly?

	7.00 percent
	7.12 percent
	7.19 percent
	7.23 percent
	7.25 percent

If interest is compounded annually, the effective annual rate and the annual percentage rate will be the same.

	True
	False

You own a bond issued by the CP railroad that promises to pay the holder $100 annually forever. You plan to sell the bond three years from now. If similar investments yield 6 percent at that time, how much will the bond be worth?

	$918.79
	$1,333.34
	$1,666.67
	$1,789.42
	$1,958.20