Finance Wk2 Homework
1. Question : (TCO 3) You have been approved for a $70,000 loan toward the purchase of a new home at 12% interest. The mortgage is for 30 years. How much are the approximately annual payments of the loan? Hint: Assume you pay yearly.
Student Answer: $2613
None of the above
Question 2. Question : (TCO 3) First Choice Bank pays 9% APR compounded quarterly on its business loans. National Emerald Bank pays 13% APR compounded monthly. The EAR for First Choice and National Emerald Bank are:
Student Answer: 9.31% and 13.80%, respectively
9% and 13.80%, respectively
9.31% and 13.50%, respectively
9% and 13.50%, respectively
Question 3. Question : (TCO 3) LED Computer Electronics is considering an investment that will have cash flows of $5,000, $6,000, $7,000 and $10,000 for years 1 through 4. What is the approximate value of this investment today if the appropriate discount rate is 9% per year?
Student Answer: $22,250
None of the above
Question 4. Question : (TCO 3) Which of the following will increase the total amount of interest earned on an investment assuming that all interest is reinvested? Select all answers that apply:
Student Answer: increasing the frequency of the interest payments
decreasing the frequency of the interest payments
increasing the interest rate
decreasing the interest rate
Question 5. Question : (TCO 3) If you borrow $50,000 today at 10% interest for eight years. How much of your second payment will be applied towards the principal of the loan?
Student Answer: $5,000
can not be determined with the information given
Question 6. Question : (TCO 3) Match the following terms with the examples as appropriate:
Student Answer: : Amortized Loan » 4 : obtained a 5-year loan from your bank to buy a new machine. You will pay $500 per month to cover both interest and principal.
: Interest-only Loan » 2 : Corporate bonds are usually issued as this form of loans.
: Treasury Bill » 1 : is usually a pure discount loan issued by the US government.
: Pure Discount Loan » 3 : You borrow $3,000 from your bank at 10% interest. You will make no payments for two months but will return the full amount plus interest at the end of three months.
Question 7. Question : (TCO 3) You are interested in saving to buy a new machine that costs $1,105. You can deposit $250 in your bank today. If your bank pays 8% annual interest on its accounts, how long will it take you to save for the new machine?
Student Answer: about 19 years
about 9 years
about 4.5 years
Can not be determined
Question 8. Question : (TCO 3) Why does money have time value?
Student Answer: Money has value because people believe that they will be able to exchange their money for goods and services at a future date or time. This concept is based upon a dollar in the hand is worth more than a dollar in the future. But when investing it is the amount an investment is worth after one or more periods is the future value of the money. So money means different things depending on the concept that it is being thought of at the time. Additionally, inflation & postponement of consumption and earning interest over time.
Instructor Explanation: (Lecture). Possible answers include:
– inflation & postponement of consumption
– earning interest over time
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