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Corporate Finance Homework 5

10 Questions
Corporate Finance Quizzes & Trivia

These are the homework questions for Chapter 5 in Corporate Finance.

Questions and Answers
  • 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. 

      Annuity

    • B. 

      Lump sum

    • C. 

      Factor

    • D. 

      Consol

    • E. 

      Perpetuity

  • 2. 
    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. 

      Annuity due

    • B. 

      Continuation

    • C. 

      Ordinary annuity

    • D. 

      Amortized payment

    • E. 

      Perpetuity

  • 3. 
    • A. 

      Effective annual rate.

    • B. 

      Perpetual rate.

    • C. 

      Simple rate.

    • D. 

      Annual percentage rate.

    • E. 

      Compounded rate.

  • 4. 
    Which one of the following statements concerning annuities is correct?
    • A. 

      The present value of an annuity is equal to the cash flow amount divided by the discount rate.

    • B. 

      An annuity due has payments that occur at the beginning of each time period.

    • C. 

      If unspecified, you should assume an annuity is an annuity due.

    • D. 

      The future value of an annuity decreases as the interest rate increases.

    • E. 

      An annuity is an unending stream of equal payments occurring at equal intervals of time.

  • 5. 
    Which one of the following qualifies as an annuity?
    • A. 

      Auto loan payment

    • B. 

      Medical bills

    • C. 

      Clothing purchases

    • D. 

      Car repairs

    • E. 

      Weekly grocery bill

  • 6. 
    Which one of the following features distinguishes an ordinary annuity from an annuity due?
    • A. 

      Annuity interest rate

    • B. 

      Frequency of the payments

    • C. 

      Amount of each payment

    • D. 

      Number of equal payments

    • E. 

      Timing of the annuity payments

  • 7. 
    Which one of the following is an ordinary annuity, but not a perpetuity?
    • A. 

      $40 paid quarterly for five years, starting today

    • B. 

      $25 paid weekly for one year, starting one week from today

    • C. 

      $50 paid every year for ten years, starting today

    • D. 

      $15 paid at the end of each monthly period for an infinite period of time

    • E. 

      $75 paid at the beginning of each month period for 50 years

  • 8. 
    Which one of the following has the highest effective annual rate?
    • A. 

      6 percent compounded quarterly

    • B. 

      6 percent compounded monthly

    • C. 

      All the other answers have the same effective annual rate.

    • D. 

      6 percent compounded annually

    • E. 

      6 percent compounded semi-anually

  • 9. 
    When comparing savings accounts, you should select the account that has the:
    • A. 

      Highest effective annual rate.

    • B. 

      Highest stated rate.

    • C. 

      Lowest effective annual rate.

    • D. 

      Highest annual percent rate.

    • E. 

      Lowest annual percentage rate.

  • 10. 
    • A. 

      The APR is equal to the EAR for a loan that charges interest monthly.

    • B. 

      The APR is the best measure of the actual rate you are paying on a loan.

    • C. 

      The APR on a monthly loan is equal to (1 + monthly interest rate)12 - 1.

    • D. 

      The EAR is always greater than the APR.

    • E. 

      The EAR, rather than the APR, should be used to compare both investment and loan options.