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Finance companies should be the first place you go to try to get a loan because they specialize in financing.

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True

False

Question 2

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What is the future value of $250 deposited today at eight percent interest compounded annually for four years?

a.

$337

b.

$333

c.

$340

d.

$330

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Which of the following is a typical example of an instalment loan?

a.

A demand loan

b.

A credit card

c.

A student loan

d.

A line of credit

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What would be the real cost of borrowing in the following case? A home equity loan is advertised at 3.5 percent compounded monthly, however, there is a legal fee of $400 and appraisal fee of $450 to set up the house as collateral. If Sarah needs to borrow $20 000 for one year, at which time will be able to repay the full amount, what is the effective rate of borrowing the $20 000 for the year?

a.

7.75%

b.

3.56%

c.

7.81%

d.

4.25%

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Jessie won a lottery and was given the following choice. He could either take $5150 at the end of each month for 25 years, or a lump sum of $700,000. At what effective annual interest rate would he be indifferent between the two choices?

a.

7.4%

b.

7.3%

c.

11.6%

d.

7.7%