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Question 1

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increasing payments paid for a definitive period of time

increasing payments paid forever

equal payments paid at regular intervals over a stated time period

equal payments paid at regular intervals of time on an ongoing basis

unequal payments that occur at set intervals for a limited period of time

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Question 2

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a limited number of equal payments paid in even time increments

payments of equal amounts that are paid irregularly but indefinitely

varying amounts that are paid at even intervals forever

unending equal payments paid at equal time intervals

unending equal payments paid at either equal or unequal time intervals

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Question 3

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ordinary annuity

amortized cash flow

annuity due

discounted loan

consol

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Question 4

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stated interest rate

compound rate

effective annual rate

simple rate

common rate

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Question 5

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stated rate

discounted annual rate

effective annual rate

periodic monthly rate

consolidated monthly rate

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Question 6

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effective annual rate

annual percentage rate

periodic interest rate

compound interest rate

daily interest rate

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Question 7

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amortized

continuous

balloon

pure discount

interest-only

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Question 8

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amortized loan

modified loan

balloon loan

pure discount loan

interest-only loan

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Question 9

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amortized loan

modified loan

balloon loan

pure discount loan

interest-only loan

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Question 10

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amortized loan

continuing loan

balloon loan

remainder loan

interest-only loan

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Question 11

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These two annuities have equal present values but unequal futures values at the end of year five.

These two annuities have equal present values as of today and equal future values at the end of year five.

Annuity B is an annuity due.

Annuity A has a smaller future value than annuity B.

Annuity B has a smaller present value than annuity A.

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Question 12

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Both options are of equal value given that they both provide $12,000 of income.

Option A has the higher future value at the end of year three.

Option B has a higher present value at time zero than does option A.

Option B is a perpetuity.

Option A is an annuity.

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Question 13

Multiple Choice

I)Both projects have the same future value at the end of year 4,given a positive rate of return.

II)Both projects have the same future value given a zero rate of return.

III)Project X has a higher present value than Project Y,given a positive discount rate.

IV)Project Y has a higher present value than Project X,given a positive discount rate.

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II only

I and III only

II and III only

II and IV only

I, II, and IV only

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Question 14

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Both sets of cash flows have equal present values as of time zero given a positive discount rate.

The present value at time zero of the final cash flow for Project A will be discounted using an exponent of three.

The present value of Project A cannot be computed because the second cash flow is equal to zero.

As long as the discount rate is positive,Project B will always be worth less today than will Project A.

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Question 15

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An ordinary annuity is worth more than an annuity due given equal annual cash flows for ten years at 7 percent interest, compounded annually.

A perpetuity comprised of $100 monthly payments is worth more than an annuity comprised of $100 monthly payments, given an interest rate of 12 percent, compounded monthly.

Most loans are a form of a perpetuity.

The present value of a perpetuity cannot be computed, but the future value can.

Perpetuities are finite but annuities are not.

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Question 16

Multiple Choice

I)Annual interest rates consider the effect of interest earned on reinvested interest payments.

II)When comparing loans,you should compare the effective annual rates.

III)Lenders are required by law to disclose the effective annual rate of a loan to prospective borrowers.

IV)Annual and effective interest rates are equal when interest is compounded annually.

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I and II only

II and III only

II and IV only

I, II, and III only

II, III, and IV only

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Question 17

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Savers would prefer annual compounding over monthly compounding.

The effective annual rate decreases as the number of compounding periods per year increases.

The effective annual rate equals the annual percentage rate when interest is compounded annually.

Borrowers would prefer monthly compounding over annual compounding.

For any positive rate of interest, the effective annual rate will always exceed the annual percentage rate.

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Question 18

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The cash flow used in the growing annuity formula is the initial cash flow at time zero.

Growth rates cannot be applied to perpetuities if you wish to compute the present value.

The future value of an annuity will decrease if the growth rate is increased.

An increase in the rate of growth will decrease the present value of an annuity.

The present value of a growing perpetuity will decrease if the discount rate is increased.

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Question 19

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Time and future values are inversely related, all else held constant.

Interest rates and time are positively related, all else held constant.

An increase in the discount rate increases the present value, given positive rates.

An increase in time increases the future value given a zero rate of interest.

Time and present value are inversely related, all else held constant.

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Question 20

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annual

semi-annual

monthly

daily

continuous

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