Finance MCQs

1. (TCO 3) You have been approved for a $70,000 loan toward the purchase of a new home at 10% interest. The mortgage is for 30 years. How much are the approximately annual payments of the loan? Hint: Assume you pay yearly. (Points : 3)

       $7425
       $8690
       $5740
       None of the above

2. (TCO 3) First Choice Bank pays 9% APR compounded quarterly on its business loans. National Emerald Bank pays 19% APR compounded semiannually. The EAR for First Choice and National Emerald Bank are: (Points : 3)

       9.31% and 19.90%, respectively
       9% and 19.50%, respectively
       9.31% and 19.50%, respectively
       9% and 19.90%, respectively

3. (TCO 3) LED Computer Electronics is considering an investment that will have cash flows of $5,000, $6,000, $7,000 and $10,000 for years 1 through 4. What is the approximate value of this investment today if the appropriate discount rate is 9% per year? (Points : 3)

       $22,250
       $30,520
       $22,120
       None of the above ($22,126)

4. (TCO 3) You deposited $3,000 in your bank account today. An increase in which of the following will increase the future value of your deposit assuming that all interest is reinvested? Assume the interest rate is a positive value. Select all answers that apply: (Points : 4)

        interest rate
        initial amount of your deposit
        frequency of the interest payments
        length of the investment period

5. (TCO 3) If you borrow $50,000 today at 10% interest for eight years. How much of your second payment will be applied to interest? (Points : 3)

       $5,000
       $4,562
       $4,809
       cannot be determined with the information given

6. (TCO 3) Match the following terms with the examples as appropriate:
(Points : 4)

Potential Matches:

1 : You obtained a business loan for four months. The loan will allow you to paid $300 in interest for three months and a final payment of interest and principal at the end of the four month. (Interest only Loan)

2 : You obtained a mortgage to buy a home. You will pay $800 per month to cover both interest and principal. (Amortized Loan)

3 : a way used by the US government to borrow money on short-term basis. (Treasury Bills)

4 : You borrow $1,000 from your best friend. In return, you will give him back $1150 in 3 months. (Pure discount Loan)

Answer

: Pure discount loan

: Amortized Loan

: Interest-only Loan

: Treasury Bill

7. (TCO 3) You are interested in saving to buy a new machine that costs $387,120. You can deposit $32,805 in your bank today. If your bank pays 14% annual interest on its accounts, how long will it take you to save for the new machine? (Points : 4)

       about 19 years
       about 5 years
       about 12 years
       Can not be determined

8. (TCO 3) What are some real-life scenarios where you can apply the time value of money? (Points : 6)

Time values of money that I have applied in my life are as follows:

Depositing money in a bank: I have deposited $12,000 in a bank 5 years ago with an interest rate of 8%. Now the future value of the money has increased to 17,631.94. Because of the time value of money it has increased.
Took a loan: I have taken a loan of $20,000 with an interest rate of 10% for 10 years. I have to make payment considering the time value of money. The annual payment rate is $3254.91, which is calculated using the present value annuity factor formula developed by the time value of money.

12 years ago

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Finance MCQs

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