You are looking at a one-year loan of $10,000. The interest rate is quoted as 8 percent plus 5 points

You are looking at a one-year loan of $10,000. The interest rate is quoted as 8 percent plus 5 points. A point on a loan is simply 1 percent (one percentage point) of the loan amount. Quotes similar to this one are very common with home mortgages. The interest rate quotation in this example requires the borrower to pay 5 points to the lender up front and repay the loan later with 10 percent interest. What is the actual rate you are paying on this loan?    A.  13.00 percent B.  13.47 percent C.  13.55 percent D.  13.68 percent E.  13.84 percent Loan amount received = $10,000 × (1 - .05) = $9,500 Loan repayment amount = $10,000 × 1.081 = $10,800 $10,800 = $9,500 × (1 + r)1; r = 13.68 percent

128.

Your holiday ski vacation was great, but it unfortunately ran a bit over budget. All is not lost. You just received an offer in the mail to transfer your $5,000 balance from your current credit card, which charges an annual rate of 18.7 percent, to a new credit card charging a rate of 9.4 percent. You plan to make payments of $510 a month on this debt. How many less payments will you have to make to pay off this debt if you transfer the balance to the new card?    A.  0.36 payments B.  0.48 payments C.  1.10 payments D.  1.23 payments E.  2.49 payments   $5,000 = $510 × [(1 - {1 + (0.094/12)]}t)/(0.094/12)] t = ln (1/0.9232)/ln 1.007833; t = 10.24 payments Difference = 10.72 - 10.24 = 0.48 payments

The interest rate that is quoted by a lender is referred to as which one of the following?

1.

An ordinary annuity is best defined by which one of the following?    A.  increasing payments paid for a definitive period of time B.  increasing payments paid forever C.  equal payments paid at regular intervals over a stated time period D.  equal payments paid at regular intervals of time on an ongoing basis E.  unequal payments that occur at set intervals for a limited period of time Refer to section 6.2

2.

Which one of the following accurately defines a perpetuity?    A.  a limited number of equal payments paid in even time increments B.  payments of equal amounts that are paid irregularly but indefinitely C.  varying amounts that are paid at even intervals forever D.  unending equal payments paid at equal time intervals E.  unending equal payments paid at either equal or unequal time intervals Refer to section 6.2

3.	Which one of the following terms is used to identify a British perpetuity?    A.  ordinary annuity B.  amortized cash flow C.  annuity due D.  discounted loan E.  consol Refer to section 6.2

4.	The interest rate that is quoted by a lender is referred to as which one of the following?    A.  stated interest rate B.  compound rate C.  effective annual rate D.  simple rate E.  common rate Refer to section 6.3