Reference no: EM131453387

1. A bank account has an infinite number of compounding periods per year. This is called:

a) Logarithmic compounding

b) Geometric compounding

c) Continuous compounding

d) Arithmetic compounding

2. The $ amount of periodic interest on an amortizing loan increases eachperiod over the life of the loan.

a) True

b) False

3. Which interest rate risk premiums would not apply to U.S. Treasury bonds?

a) Inflation & Liquidity Risk Premiums

b) Default & Liquidity Risk Premiums

c) Liquidity & Maturity Risk Premiums

d) Inflation & Default Risk Premiums

4. You have calculated the present value of a lump sum to be received in ‘ n ’ years using a discount rate of r assuming annual compounding periods. If the compounding period were to be quarterly rather than annual, you would have to modify your calculation by:

a) multiplying r x 4, dividing t/ 4

b) multiplying t x 4, dividing r / 4

c) multiplying both t and r by 4

d) dividing both t and r by 4

5. An annuity payment related to a loan will always be a(n) ______. An annuity payment for rent on an apartment will most likely be a(n) ________.

a) annuity due / ordinary annuity

b) ordinary annuity / ordinary annuity

c) ordinary annuity / annuity due

d) annuity due / annuity due

6. A car loan is most likely:

a) A discount loan

b) An interest only loan

c) An amortizing loan

d) An unsecured loan

7. The mathematical relationship of Nominal to Real interest rates is defined by a principle known as:

a) Compounding

b) The Fisher Effect

c) The Discount Effect

d) Inflation adjustment

8. A 15 - year real estate loan follows a 30- year amortization schedule, but requires the remaining balance to be paid in full at the end of 15 years. That large final payment is called a(n):

a) Amortizing payment

b) A pure discount payment

c) A liquidating payment

d) A balloon payment

9. It took 8 years for your lump sum balance to grow from “X” to “Z” at an interest rate of 5%. If the interest rate were to have been higher, it would have taken longer for your balance to grow from “X” to “Z”.

a) True

b) False

10. It took 10 years for your lump sum balance to grow from “X” to “Z” at an interest rate of 5%. In order to achieve the same balance in eight years, you would have had to have earned a higher interest rate.

a) True

b) False