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Question(s) / Instruction(s):

An amortized loan:

a)      Requires the principal amount to be repaid in even increments over the life of the loan.

b)      Requires that all interest be repaid on a monthly basis while the principal is repaid at the end of the loan term.

c)       Repays both the principal and the interest in one lump sum at the end of the loan term.

d)      Requires that all payments be equal in amount and include both principal and interest.

e)      May have equal or increasing amounts applied to the principal from each loan payment.



Question 12

Which one of the following terms is used to describe a loan wherein each payment is equal in amount and includes both interest and principal?

a)      Balloon loan

b)      interest-only loan

c)       Pure discount loan

d)      Modified loan

e)      Amortized loan


Question 13

The entire repayment of which one of the following loans is computed simply by computing a single future value?

a)      interest-only loan

b)      balloon loan

c)       bullet loan

d)      pure discount loan

e)      amortized loan

Question 14

The preferred stock of Casco has a 5.48 percent dividend yield. The stock is currently priced at $59.30 per share. What is the amount of the annual dividend?

a)      $3.10

b)      $2.80

c)       $3.40

d)      $2.95

e)      $3.25


Question 15

You just won the grand prize in a national writing contest! As your prize, you will receive $2,000 a month for ten years. If you can earn 7 percent on your money, what is this prize worth to you today?

a)      $190,450.25

b)      $172,252.71

c)       $178,411.06

d)      $181,338.40

e)      $185,333.33


Question 16

Beginning three months from now, you want to be able to withdraw $1,500 each quarter from your bank account to cover college expenses over the next 4 years. The account pays 1.25 percent interest per quarter. How much do you need to have in your account today to meet your expense needs over the next 4 years?

a)      $22,068.00

b)      $21,847.15

c)       $22,711.18

d)      $21,630.44

e)      $22,454.09


Question 17

Samuelson Engines wants to save $750,000 to buy some new equipment six years from now. The plan is to set aside an equal amount of money on the first day of each quarter starting today. The firm can earn 4.75 percent on its savings. How much does the firm have to save each quarter to achieve its goal?

a)      $27,192.05

b)      $27,419.29

c)       $26,872.94

d)      $26,969.70

e)      $27,911.08


Question 18

Nadine is retiring at age 62 and expects to live to age 85. On the day she retires, she has $348,219 in her retirement savings account. She is somewhat conservative with her money and expects to earn 6 percent during her retirement years. How much can she withdraw from her retirement savings each month if she plans to spend her last penny on the morning of her death?

a)      $1,919.46

b)      $1,609.92

c)       $2,329.05

d)      $1,847.78

e)      $2,116.08

Question 19

You have just won the lottery and will receive $540,000 as your first payment one year from now. You will receive payments for 26 years. The payments will increase in value by 4 percent each year. The appropriate discount rate is 10 percent. What is the present value of your winnings?

a)      $7,811,406

b)      $6,906,372

c)       $8,003.11

d)      $6,221,407

e)      $7,559,613

Question 20

You borrow $165,000 to buy a house. The mortgage rate is 7.5 percent and the loan period is 30 years. Payments are made monthly. If you pay the mortgage according to the loan agreement, how much total interest will you pay?

a)      $206,408

b)      $229,079

c)       $250,332

d)      $264,319

e)      $291,406


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