Practice Questions 1. Last National Bank is offering you a loan at 92% APR: payments on the loan are to be made monthly. Credit Onion is offering you a loan where payments are to be made semiannually, the rate on the loan is 9.7% APR. Local Bank down the street is offering a loan al 95% APR where the payments are made quarterly. Which loan has the lowest annual cost? A) Last National Bank's loan B) Local Bank's loan Credit Onion's loan D) All of the loans will have the same annualcost. 2. Your daughter is born today and you want her to be a millionaire by the time she is 35 years old. You open an investment account that promises to pay 12% per year. How much money must you deposit at the start of each year, starting on her 1st birthday and ending on her 35th birthday, so your daughter will have $1,000,000 by her 35th birthday? A) $9.450 B) $5,777 C) $2,317 D) $3,455 3. How much would you be willing to pay today (rounded to the nearest dollar) for a 20-year annuity due if the payments are $4,500 per year and you want to cam a rate of return equal to 5.5% per year? A) 584,500 B) $63,445 C)556,734 D) 553,777 4. The difference in the present value of two annuities which are identical in all respects, except that one of them is an annuity due and the other is not changes in the following way as the interest rate (r%) changes: A) increases as interest rates increase B) decreases as interest rates increase C) remains the same as interest rates increase D) not enough information to answer 5. You decide to borrow $250,000 to build a new home. The bank charges an interest rate of 8% APR compounded monthly. If you pay back the loan over 30 years, what will your monthly payments be (rounded to the nearest dollar)? A) $1,123 B) $1,237 $1,687 D) $1,834