Which one of the following statements is NOT true?

Which one of the following statements is NOT true?

A) The correct way to annualize an interest rate is to compute the effective annual interest rate (EAR).
B) The APR is the annualized interest rate using simple interest.
C) The correct way to annualize an interest rate is to compute the annual percentage rate (APR).
D) You can find the interest rate per period by dividing the quoted annual rate by the number of compounding periods.

Answer: C

Which one of the following statements is NOT true?

Which one of the following statements is NOT true?

A) The Truth-in-Lending Act was passed by Congress to ensure that the true cost of credit was disclosed to consumers.
B) The Truth-in-Savings Act was passed to provide consumers an accurate estimate of the return they would earn on an investment.
C) The above two pieces of legislation require by law that the APR be disclosed on all consumer loans and savings plans.
D) All of the above are true statements.

Answer: D

Which one of the following statements is NOT true?

Which one of the following statements is NOT true?

A) The APR is the appropriate rate to do present and future value calculations.
B) The EAR is the appropriate rate to do present and future value calculations.
C) The EAR is the true cost of borrowing and lending.
D) The EAR takes compounding into account.

Answer: A

The true cost of lending is the

The true cost of lending is the

A) annual percentage rate.
B) effective annual rate.
C) quoted interest rate.
D) none of the above.

Answer: B

The true cost of borrowing is the

The true cost of borrowing is the

A) annual percentage rate.
B) effective annual rate.
C) quoted interest rate.
D) periodic rate.

Answer: B

Which one of the following statements is TRUE about the effective annual rate (EAR)?

Which one of the following statements is TRUE about the effective annual rate (EAR)?

A) The effective annual interest rate (EAR) is defined as the annual growth rate that takes compounding into account.
B) The EAR conversion formula accounts for the number of compounding periods and, thus, effectively adjusts the annualized interest rate for the time value of money.
C) The EAR is the true cost of borrowing and lending.
D) All of the above are true.

Answer: D

Your investment in a small business venture will produce cash flows that increase by 15 percent every year for the next 25 years. This cash flow stream is called

Your investment in a small business venture will produce cash flows that increase by 15 percent every year for the next 25 years. This cash flow stream is called

A) an annuity due.
B) a growing perpetuity.
C) an ordinary annuity.
D) a growing annuity.

Answer: D

A firm receives a cash flow from an investment that will increase by 10 percent annually for an infinite number of years. This cash flow stream is called

A firm receives a cash flow from an investment that will increase by 10 percent annually for an infinite number of years. This cash flow stream is called

A) an annuity due.
B) a growing perpetuity.
C) an ordinary annuity.
D) a growing annuity.

Answer: B

The annuity transformation method is used to transform

The annuity transformation method is used to transform

A) a present value annuity to a future value annuity.
B) a present value annuity to an annuity due.
C) an ordinary annuity to an annuity due.
D) a perpetuity to an annuity.

Answer: C

Which one of the following statements is true about amortization?

Which one of the following statements is true about amortization?

A) With an amortized loan, a bigger proportion of each month's payment goes toward interest in the early periods.
B) With an amortized loan, a bigger proportion of each month's payment goes toward interest in the later periods.
C) With an amortized loan, a smaller proportion of each month's payment goes toward interest in the early periods.
D) None of the above.

Answer: A

Which one of the following statements is NOT true about amortization?

Which one of the following statements is NOT true about amortization?

A) Amortization refers to the way the borrowed amount (principal) is paid down over the life of the loan.
B) With an amortized loan, each loan payment contains some payment of principal and an interest payment.
C) With an amortized loan, a smaller proportion of each month's payment goes toward interest in the early periods.
D) A loan amortization schedule is just a table that shows the loan balance at the beginning and end of each period, the payment made during that period, and how much of that payment represents interest and how much represents repayment of principal.

Answer: C

Which ONE of the following statements is true about amortization?

Which ONE of the following statements is true about amortization?

A) Amortization refers to the way the borrowed amount (principal) is paid down over the life of the loan.
B) With an amortized loan, each loan payment contains some payment of principal and an interest payment.
C) A loan amortization schedule is just a table that shows the loan balance at the beginning and end of each period, the payment made during that period, and how much of that payment represents interest and how much represents repayment of principal.
D) All of the above are true.

Answer: D

Cash flows associated with annuities are considered to be

Cash flows associated with annuities are considered to be

A) an uneven cash flow stream.
B) a cash flow stream of the same amount (a constant cash flow stream).
C) a mix of constant and uneven cash flow streams.
D) none of the above.

Answer: B

If your investment pays the same amount at the end of each year forever, the cash flow stream is called

If your investment pays the same amount at the end of each year forever, the cash flow stream is called

A) a perpetuity.
B) an ordinary annuity.
C) an annuity due.
D) none of the above.

Answer: A

If your investment pays the same amount at the beginning of each year for a period of 10 years, the cash flow stream is called

If your investment pays the same amount at the beginning of each year for a period of 10 years, the cash flow stream is called

A) a perpetuity.
B) an ordinary annuity.
C) an annuity due.
D) none of the above.

Answer: C

If your investment pays the same amount at the end of each year for a period of six years, the cash flow stream is called

If your investment pays the same amount at the end of each year for a period of six years, the cash flow stream is called

A) a perpetuity.
B) an ordinary annuity.
C) an annuity due.
D) none of the above.

Answer: B

The future value of multiple cash flows is

The future value of multiple cash flows is

A) greater than the sum of the cash flows.
B) equal to the sum of all the cash flows.
C) less than the sum of the cash flows
D) none of the above.

Answer: A

The present value of multiple cash flows is

The present value of multiple cash flows is

A) greater than the sum of the cash flows.
B) equal to the sum of all the cash flows.
C) less than the sum of the cash flows.
D) none of the above.

Answer: C

In computing the present and future value of multiple cash flows,

In computing the present and future value of multiple cash flows,

A) earlier cash flows are discounted at a lower rate.
B) each cash flow is discounted or compounded at the same rate.
C) earlier cash flows are discounted at a higher rate.
D) none of the above.

Answer: B

In computing the present and future value of multiple cash flows,

In computing the present and future value of multiple cash flows,

A) each cash flow is discounted or compounded at the same rate.
B) each cash flow is discounted or compounded at a different rate.
C) earlier cash flows are discounted at a higher rate.
D) later cash flows are discounted at a higher rate.

Answer: A