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Pages 4

1. Travis is buying a car and will finance it with a loan which requires monthly payments of $265 for the next 4 years. His car payments can be described by which one of the following terms?

A. Perpetuity

B. Annuity

C. Consol

D. Lump sum

E. Factor

2. Janis just won a scholarship that will pay her $500 a month, starting today, and continuing for the next 48 months. Which one of the following terms best describes these scholarship payments?

A. Ordinary annuity

B. Annuity due

C. Consol

D. Ordinary perpetuity

E. Perpetuity due

3. The Jones Brothers recently established a trust fund that will provide annual scholarships of $12,000 indefinitely. These annual scholarships can best be described by which one of the following terms?

A. Ordinary annuity

B. Annuity due

C. Amortized payment

D. Perpetuity

E. Continuation

4. A perpetuity in Canada is frequently referred to as which one of the following?

A. Consul

B. Infinity

C. Forever cash

D. Dowry

E. Forevermore

5. The stated interest rate is the interest rate expressed:

A. as if it were compounded one time per year.

B. as the quoted rate compounded by 12 periods per year.

C. in terms of the rate charged per day.

D. in terms of the interest payment made each period.

E. in terms of an effective rate.

6. Anna pays 1.5 percent interest monthly on her credit card account. When the interest rate on that debt is expressed as if it were compounded only annually, the rate would be referred to as the:

A. annual percentage rate.

B. compounded rate.

C. quoted rate.

D. stated rate.

E. effective annual rate.

7. Lee pays one percent per month interest on his credit card account. When his monthly rate is multiplied by 12, the resulting answer is referred to as the:

A. annual percentage rate.

B. compounded rate.

C. effective annual rate.

D. perpetual rate.

E. simple rate.

Chapter 05 Discounted Cash Flow Valuation Answer Key

Multiple Choice Questions

1. Travis is buying a car and will finance it with a loan which requires monthly payments of $265 for the next 4 years. His car payments can be described by which one of the following terms?

A. Perpetuity

B. Annuity

C. Consol

D. Lump sum

E. Factor

Refer to section 5.2.

Bloom's: Knowledge

Difficulty: Basic

Learning Objective: 05-02 Calculate loan payments and find the interest rate on a loan.

Section: 5.2

Topic: Annuities

2. Janis just won a scholarship that will pay her $500 a month, starting today, and continuing for the next 48 months. Which one of the following terms best describes these scholarship payments?

A. Ordinary annuity

B. Annuity due

C. Consol

D. Ordinary perpetuity

E. Perpetuity due

Refer to section 5.2.

Bloom's: Knowledge

Difficulty: Basic

Learning Objective: 05-02 Calculate loan payments and find the interest rate on a loan.

Section: 5.2

Topic: Annuity due

3. The Jones Brothers recently established a trust fund that will provide annual scholarships of $12,000 indefinitely. These annual scholarships can best be described by which one of the following terms?

A. Ordinary annuity

B. Annuity due

C. Amortized payment

D. Perpetuity

E. Continuation

Refer to section 5.2.

Bloom's: Knowledge

Difficulty: Basic

Learning Objective: 05-02 Calculate loan payments and find the interest rate on a loan.

Section: 5.2

Topic: Perpetuity

4. A perpetuity in Canada is frequently referred to as which one of the following?

A. Consul

B. Infinity

C. Forever cash

D. Dowry

E. Forevermore

Refer to section 5.2.

Bloom's: Knowledge

Difficulty: Basic

Learning Objective: 05-02 Calculate loan payments and find the interest rate on a loan.

Section: 5.2

Topic: Consul

5. The stated interest rate is the interest rate expressed:

A. as if it were compounded one time per year.

B. as the quoted rate compounded by 12 periods per year.

C. in terms of the rate charged per day.

D. in terms of the interest payment made each period.

E. in terms of an effective rate.

Refer to section 5.3.

Bloom's: Knowledge

Difficulty: Basic

Learning Objective: 05-04 Explain how interest rates are quoted (and misquoted).

Section: 5.3

Topic: Stated interest rate

6. Anna pays 1.5 percent interest monthly on her credit card account. When the interest rate on that debt is expressed as if it were compounded only annually, the rate would be referred to as the:

A. annual percentage rate.

B. compounded rate.

C. quoted rate.

D. stated rate.

E. effective annual rate.

Refer to section 5.3.

Bloom's: Knowledge

Difficulty: Basic

Learning Objective: 05-04 Explain how interest rates are quoted (and misquoted).

Section: 5.3

Topic: Effective annual rate

7. Lee pays one percent per month interest on his credit card account. When his monthly rate is multiplied by 12, the resulting answer is referred to as the:

A. annual percentage rate.

B. compounded rate.

C. effective annual rate.

D. perpetual rate.

E. simple rate.

Refer to section 5.3.

Bloom's: Knowledge

Difficulty: Basic

Learning Objective: 05-04 Explain how interest rates are quoted (and misquoted).

Section: 5.3

Topic: Annual percentage rate

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