1. If a bank compounds the interest on a savings account quarterly, the Effective Annual Rate (EAR) of the account will exceed the Nominal Rate of the account (APR)
a) True
b) False
2. The present value of a future lump sum decreases as the discount rate used decreases, all else held constant.
a) True
b) False
3. You make monthly payments on a loan, and those payments pay interest and also reduce the balance of your loan. What type of loan do you have?
a) Discount Loan
b) Interest Only Loan
c) Amortizing Loan
d) Commercial loan
4. You make monthly payments on your loan, but the balance is not reduced until you make your very last payment. What type of loan do you have?
a) Discount Loan
b) Interest Only Loan
c) Amortizing Loan
d) Principal Only
5. You make no payments on your loan until you finally pay it off at maturity. What type of loan do you have?
a) Amortizing Loan
b) Low Yield loan
c) Discount Loan
d) Interest Only Loan
6. The process of finding the present value of a lump sum or annuity is also called:
a) Discounting
b) Amortizing
c) Compounding
d) Leveraging
7) Banks are required by law to disclose to you the ___________ on their savings accounts and the ____________ they charge on loans:
a) APR / EAR
b) Yield / EAR
c) EAR / APR
d) APR / APR
8. The process of growth, in which interest is paid on interest, is called:
a) Discounting
b) Yielding
c) Augmenting
d) Compounding
9. An annuity that involves equal periodic payments without end is called:
a) An annuity due
b) A perpetuity
c) An interest- only loan
d) Taxes
10. Two annuities are the same in all respects except that one is an ordinary annuity and the other an annuity due. The PV and the FV of the annuity due is greater than that of the ordinary annuity:
a) True
b) False