ch 4
Which of the following statements is NOT accurate?
A) Simple interest is interest earned only the original principal invested.
B) Compound interest is interest earned on both the original principal and the accumulated interest from previous periods.
C) In practice, most loans are based on simple interest.
D) In practice, most loans are based on compound interest
C) In practice, most loans are based on simple interest.
Which of the following statements is NOT correct?
A) In an interest-only loan, each payment includes interest and a portion of the principal.
B) In an interest-only loan, each payment covers only interest, except for the final payment, which repays the
entire original principal.
C) In an amortized loan, each payment includes both interest and a portion of the principal.
D) In an amortized loan, the interest portion of each payment is higher at the beginning of the loan and decreases
over time as the loan approaches maturity
A) In an interest-only loan, each payment includes interest and a portion of the principal.
The process of finding the present value of some future amount is often called _?
A) growth
B) discounting
C) accumulation
D) compounding
E) reduction
B) discounting
A loan where the borrower pays interest each period and repays the entire principal of the loan at some point in
the future is called a(n) _________ loan.
A) amortized
B) continuous
C) balloon
D) pure discount
E) interest-only
E) interest-only
Which of the following statements is/are FALSE, all else the same?
I. Present values increase as the discount rate increases.
II. Present values increase the further away in time the future value.
III. Present values are smaller than future values when both r and t are positive.
A) I only
B) I and II only
C) II only
D) III only
E) II and III only
B) I and II only
Which of the following statements is NOT correct?
A) In an interest-only loan, each payment covers only interest, except for the final
payment, which also repays the entire original principal.
B) In a pure discount loan, the borrower receives money today and repays a single lump
sum at a future date.
C) In an amortized loan, the interest portion of each payment is lower at the beginning
of the loan and rises over time as the loan approaches maturity.
D) In an amortized loan, each payment includes both interest and a portion of the principal
D) In an amortized loan, each payment includes both interest and a portion of the principal
Which of the following statements is NOT accurate?
A) Simple interest is interest earned only on the original principal invested.
B) Compound interest is interest earned on both the original principal and the
accumulated interest from previous periods.
C) "Interest on interest" is what distinguishes compound interest from simple interest.
D) In practice, most savings accounts and loans are based on simple interest
D) In practice, most savings accounts and loans are based on simple interest
A loan where the borrower receives money today and repays a single lump sum,
interest and principal together, at some point in the future is called a(n) _________ loan.
A) amortized
B) continuous
C) balloon
D) pure discount
E) interest-only
A) amortized
Which of the following statements is/are FALSE, all else the same?
I. Future values decrease as the interest rate increases.
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Finance 101 Study Guide: Chapters 4, 5 & 6 (Practice Exam #3 + Extra Math Drills)
II. Present values decrease the further away in time the future value is.
III. Future values are smaller than present values when both r and t are positive.
A) I only
B) I and II only
C) II only
D) III only
E) I and III only
E) I and III only