1) Suppose you invest $3,500 today, compounded semiannually, with an annual interest rate of 8.50%. What amount of interest will you earn in one year?

A) $303.82

B) $307.12

C) $309.13

D) $313.82

2) What is the EAR if the APR is 5% and compounding is quarterly?

A) Slightly above 5.09%

B) Slightly below 5.09%

C) Under 5.00%

D) Over 5.25%

3) You put down 20% on a home with a purchase price of $300,000. The down payment is thus $60,000, leaving a balance owed of $240,000. The bank will loan you the remaining balance at 4.28% APR. You will make annual payments with a 20-year payment schedule. What is the annual annuity payment under this schedule?

A) $18,100.23

B) $22,625.29

C) $12,000.00

D) $33,785.23

4) Nominal interest rates are the sum of two major components. These components are ________.

A) the real interest rate and expected inflation

B) the risk-free rate and expected inflation

C) the real interest rate and default premium

D) the real interest rate and the T-bill rate

5) The ________ compensates the investor for the additional risk that the loan will not be repaid in full.

A) default premium

B) inflation premium

C) real rate

D) interest rate