Deck 4: Personal Finance

Question 1

_______________ interest is calculated by applying the interest rate to the principal only, not to interest earned.

A)Compound
B)Simple
C)Quarterly
D)Annual

Answer 1

B

Question 2

Assume a 30-month CD purchased for $2500 pays simple interest at an annual rate of 6%. What is the balance at maturity?

A)$375
B)$2875
C)$2950
D)$2680

Answer 2

B

Question 3

We can afford to make payments of $350 per month for four years. What is the largest amount of a loan we can get at an APR of 5%?

A)$6327
B)$11,253
C)$15,198
D)$16,800

Answer 3

C

Question 4

The _______________ of an investment is the value of that investment at some specified time in the future.

A)present value
B)future value
C)annual percentage yield
D)doubling time

Question 5

If interest is compounded 12 times per year, the period interest rate is .

Question 6

At age 25, you start work for a company that deposits $10,000 into a retirement account that pays a monthly interest rate of 1.1%, and interest is compounded monthly. If you retire at 65, what is the balance in this account?

A)$1,907,895.94
B)$1,140,286.20
C)$1,690,656.85
D)$2,036,221.94

Question 7

Consider a savings account paying an APR of 4% compounded semi-annually. Compare the doubling time using the Rule of 72 with the exact doubling time.

A)The Rule of 72 estimates the doubling time as 17.5 years, which overestimates the actual doubling time.
B)The Rule of 72 estimates the doubling time as 17.5 years, which underestimates the actual doubling time.
C)The Rule of 72 estimates the doubling time as 18 years, which overestimates the actual doubling time.
D)The Rule of 72 estimates the doubling time as 18 years, which underestimates the actual doubling time.

Question 8

If you borrow money to pay for an item, your _______________ in that item at a given time is the part of the principal you have paid.

A)investment
B)amortization
C)equity
D)interest

Question 9

Suppose you have invested $1500 at an APR of 8%. Use the Rule of 72 to estimate how long it will be until your investment reaches $3000.

A)6 years
B)7 years
C)8 years
D)9 years

Question 10

The Rule of 72 states that the estimate for doubling time = _______________ .

A)
B)
C)
D)

Question 11

The largest monthly payment we can afford is $360. Can we afford to borrow a principal of $6750 with a term of 18 months?

A)Yes, because we need to pay $350 when there is no interest.
B)Yes, because we need to pay $360 when there is no interest.
C)No, because we need to pay at least $375 when there is no interest.
D)Not enough information to decide.

Question 12

What is the future value of a 5-year investment of $3000 at an APR of 7% compounded monthly?

A)$4252.88
B)$3034.21
C)$4050.00
D)$1252.88

Question 13

As an investor, you are searching for the highest possible rate. Which of the following options gives the highest APY?

A)APR of 3.25% compounded semiannually
B)APR of 3.23% compounded quarterly
C)APR of 3.21% compounded monthly
D)All of the above options have the same APY.

Question 14

The going rate for a home mortgage with a term of 30 years is 6%. The lending agency says that based on your income, your monthly payment can be at most $900. How much can you borrow?

A)$324,000.00
B)$239,504.78
C)$115,307.63
D)$150,112.45

Question 15

Suppose you invest $5000 in a savings account that pays an APR of 4%. If the interest is compounded monthly, what is the balance in the account after 10 years?

A)$5203.71
B)$8072.64
C)$7454.16
D)$5169.19

Question 16

To buy a car, you borrow $25,000 with a term of three years at an APR of 6.5%. What is your monthly payment?

A)$250.65
B)$766.23
C)$162.50
D)$487.50

Question 17

Assume a six-month CD purchased for $5000 pays simple interest at an annual rate of 9.5%. How much interest does it earn?

A)$2850
B)$950
C)$237.50
D)$118.75

Question 18

What is the present value of an investment that will be worth $5000 at the end of ten years assuming an APR of 8% compounded monthly?

A)$4678.57
B)$3356.05
C)$1921.79
D)$2252.62

Question 19

A fairly good estimate for a long-term loan with a moderate or high interest rate is that the monthly payment is _______________ as large as the principal times the monthly interest rate.

A)at most
B)at least
C)half
D)twice

Question 20

Joe bought a nine-month CD for $1500. He said that at maturity it paid $82.13 in simple interest. Compute the corresponding yearly interest rate.

A)6.8%
B)6.9%
C)7.1%
D)7.3%

Question 21

Suppose you want to borrow a principal of $450,000 for a term of 25 years at an APR of 5.5%. Then the monthly payment would be at least:

A)$2062.50
B)$2475.00
C)$1500.00
D)$990.00

Question 22

Your _______________ is the balance of your retirement account at the time of retirement.

A)annuity
B)monthly yield
C)nest egg
D)perpetuity

Question 23

Assume you take out a $3000 loan for 12 months at 8.5% APR. What percentage of the first month's payment is interest?

A)6.15%
B)6.82%
C)7.47%
D)8.12%

Question 24

You have a savings account into which you invest $100 at the end of every month and the account pays you an APR of 6% compounded monthly. Use the regular deposits balance formula to determine the balance in the account at the end of 3 years.

A)$3816.00
B)$3933.61
C)$3515.67
D)$2918.75

Question 25

You want to save $30,000 for a down payment on a home by making regular monthly deposits over four years. If the APR is 7%, how much money do you need to deposit each month?

A)$543.39
B)$419.04
C)$668.08
D)$625.00

Question 26

Suppose you buy a two-year $7500 CD at an APR of 6.75% compounded monthly. How much interest will you be paid by the end of the period?

A)$8580.78
B)$1012.50
C)$1080.78
D)$858.08

Question 27

You have set up a life annuity with a present value of $250,000. If your life expectancy at retirement is 25 years, what will your monthly income be if the APR is 8%, compounded monthly.

A)$1889.03
B)$1929.54
C)$1978.69
D)$2047.65

Question 28

You find that the going rate for a home mortgage with a term of 30 years is 7.6% APR. If your largest monthly payment is $800, how much can you borrow?

A)$56,604.67
B)$113,302.45
C)$120,383.90
D)$127,465.30

Question 29

A(n) _______________ is an arrangement that withdraws both principal and interest from your nest egg.

A)monthly yield
B)annuity
C)down payment
D)perpetuity

Question 30

How much do you need to deposit each month for three years into a savings account that pays 6.5% APR in order to buy a car that costs $25,000?

A)$613.78
B)$630.81
C)$635.55
D)$654.24

Question 31

You have a savings account into which you invest $75 at the end of every month and the account pays you an APR of 7% compounded monthly. Use the regular deposits balance formula to determine the balance in the account at the end of 6 months.

A)$481.50
B)$534.28
C)$463.17
D)$456.61

Question 32

Find the interest paid on a 30-year mortgage of $350,000 at an APR of 6%.

A)$405,431.20
B)$280,000.00
C)$755,434.80
D)$531,010.00

Question 33

What size nest egg do we need in order to retire with a 20-year annuity that yields $5000 per month if the retirement account pays an APR of 6%?

A)$678,354.2
B)$697,903.9
C)$701,340.7
D)$709,541.3

Question 34

A car dealer offers you a loan with no interest charged for the term of three years. If you need to borrow $15,000, what will your monthly payment be?

A)$416.67
B)$450.00
C)$500.00
D)$375.00

Question 35

You have a 20-year annuity with a present value of $575,000. If the APR is 6%, what is the monthly yield?

A)$4119.48
B)$4325.67
C)$3761.26
D)$4439.18

Question 36

A(n) _______________ mortgage keeps the same interest rate over the life of the loan.

A)adjustable-rate
B)variable-rate
C)fixed-rate
D)prime-rate

Question 37

Bruce started to deposit $400 per month into a retirement account 15 years ago. You are planning to deposit a fixed amount monthly to another account for the next 15 years. If both you and Bruce have the same nest egg in 15 years, how much would you need to deposit each month? Assume that both accounts pay an APR of 7% compounded monthly.

A)$1397.3
B)$1421.4
C)$1539.6
D)$1645.8

Question 38

You want to save money to buy a new computer system. If you deposit $100 a month for a year at an APR of 6% compounded monthly, how much money will you have saved after a year?

A)$1272.00
B)$1233.56
C)$1022.80
D)$1167.54

Question 39

Suppose you want to borrow a principal of $27,000 for a term of 36 months. Then the monthly payment would be at least:

A)$810
B)$750
C)$900
D)$667

Question 40

You begin working at age 25, and your employer deposits $200 a month into a retirement account that pays an APR of 8% compounded monthly. What will be the size of your nest egg at age 65?

A)$619,876.53
B)$698,201.57
C)$701,340.98
D)$654,706.85

Question 41

Which country on the following list has the lowest percent decrease in buying power?

A)Syria
B)Venezuela
C)Iran
D)Argentina

Question 42

Suppose B is your credit card balance and m is your minimum monthly payment as a percentage of your balance. Then your minimum payment = _______________ .

A)m + B
B)mB
C)m/B
D)B/m

Question 43

Suppose your Visa charges an APR of 22.5%. Your previous statement showed a balance of $750 and in response you made a payment of $250. You then bought $300 worth of clothes, which you charged to your Visa. What will your finance charge be for the month?

A)$14.06
B)$13.13
C)$18.00
D)$15.00

Question 44

A simplified formula for the amount on a credit card subject to finance charges is:

A)Previous balance + Payments - Purchases
B)Previous balance - Payments + Purchases
C)Payments + Purchases - Previous balance
D)Payments - Purchases - Previous balance

Question 45

You have a balance of $15,000 for your tuition on your American Express credit card. If your APR is 21%, you make no further charges, and each month you make only the minimum payment of 3% of your balance, then the formula for the balance after t monthly payments is given by 15,000(0.986975)^t . What will the balance be after 10 years?

A)$4043.03
B)$3768.92
C)$3150.00
D)$3110.50

Question 46

You begin your retirement savings at age 40. You plan on retiring at age 65. How much would you need to deposit each month into a savings account with an APR of 6% compounded monthly if your goal is a nest egg of $150,000?

A)$302.48
B)$216.45
C)$279.83
D)$199.37

Question 47

The Consumer Price Index (CPI) is a measure of the average price paid by urban consumers for a "market basket" of consumer goods and services.

Question 48

Your nest egg can provide a monthly income of $4000 for 20 years. If you want 15-years annuity rather than 20-years annuity, what will be the monthly income from the same amount of nest egg? Assume an APR of 6%.

A)$4711.4
B)$5125.6
C)$5367.7
D)$6000.0

Question 49

Assume that you have a balance of $4000 on your credit card and you make no further charges. If your APR is 22.7% and each month you make only the minimum payment of 5% of your balance, then at which payment will you begin making payments of $30 or less?

A)58th payment
B)70th payment
C)64th payment
D)68th payment

Question 50

You have a balance of $3800 on your credit card and you make no further charges. Assuming that your APR is 18.9% and that each month you make only the minimum payment of 5% of your balance, determine when the balance first drops below $100.

A)After 100th payment
B)After 102nd payment
C)After 105th payment
D)After 107th payment

Question 51

You have a balance of $500 on your credit card and make no more charges. Assume the card carries an APR of 19%. Suppose you want to pay off the card in six months by making equal payments each month. What is your monthly payment?

A)$83.33
B)$99.17
C)$88.01
D)$85.00

Question 52

If you only make your credit card's minimum payment, then your balance will decrease very slowly and will follow an exponential pattern.

Question 53

Suppose at age 25 you begin putting $300 a month into a cookie jar until you retire at age 65. At age 65, you begin to withdraw $2000 a month out of the cookie jar. How long will this retirement fund last?

A)72 months
B)60 months
C)48 months
D)144 months

Question 54

The _______________ is the maximum balance the credit card company allows you to carry.

A)finance charge
B)credit limit
C)previous balance
D)minimum payment

Question 55

Assume that you have a balance of $4000 on your credit card and that you make no more charges. If your APR is 23.9% and each month you make only the minimum payment of 5% of your balance, then when is the first time that the balance would be less than $100?

A)After 100 monthly payments
B)After 104 monthly payments
C)After 113 monthly payments
D)After 117 monthly payments

Question 56

Cash advances on credit cards incur lower finance charges than do purchases.

Question 57

You have a new credit card with a promotional 0% APR for a limited time. The card requires a minimum payment of 4% of the balance. You feel you can afford to pay no more than $150 each month. How much can you afford to charge?

A)$3750
B)$5600
C)$1800
D)$7200

Question 58

You have a balance of $7500 on your credit card and you make no further charges. If your APR is 12.5% and each month you make only the minimum payment of 5% of your balance, what will be your balance after 24 months?

A)$3307.83
B)$3789.06
C)$1703.27
D)$2808.28

Question 59

In the Buying Power Formula, , i is the _______________ .

A)interest rate
B)inflation rate
C)investment rate
D)income rate

Question 60

Assume that you have a balance of $5000 on your Visa credit card and that you make no more charges. If your APR is 22% and each month you make only the minimum payment of 3% of your balance, then find a formula for the balance after t monthly payments.

A)5000(0.987783)^t
B)5000(0.952217)^t
C)5000(1.048883)^t
D)5000(1.011117)^t

Question 61

Suppose the stock of Microsoft increases in value by $5 per share. If all other Dow stock prices remain unchanged, how does this affect the DJIA?

A)32.10 points up
B)30.24 points up
C)22.68 points up
D)15.12 points up

Question 62

Suppose the buying power of the dollar decreases by 6.7% this year. What is the rate of inflation this year?

A)6.3%
B)6.7%
C)7.6%
D)7.2%

Question 63

The rate of inflation in Ethiopia was 41% in 2008. What was the percentage decrease that year in the buying power of the birr (the currency of Ethiopia)?

A)41.0%
B)29.1%
C)69.5%
D)37.5%

Question 64

Suppose the rate of inflation this year is 4.5%. What is the percentage decrease in the buying power of a dollar?

A)4.3%
B)4.5%
C)4.7%
D)4.9%

Question 65

If a chair cost $100 in December 2010 and the price changed in accordance with the inflation table below, how much did the chair cost in December 2012?

A)$103.226
B)$104.545
C)$104.751
D)$106.322

Question 66

Below is the 2010 Tax Table for Singles. If in 2010 Jason was single and had a taxable income of $80,000, how much tax did he owe?

A)$4,681.25
B)$16,181.25
C)$11,500.00
D)$34,000.00

Question 67

Find the 5-year inflation rate in the United States from December 2008 to December 2013.

A)10.40%
B)10.50%
C)10.85%
D)10.94%

Question 68

Below is the 2010 Tax Table for Married Couples Filing Jointly. In 2010 Will had a taxable income of $45,000 and his wife Jill had a taxable income of $50,000. If they filed jointly, how much tax did they owe?

A)$16,112.50
B)$23,750.00
C)$9,362.50
D)$11,703.13

Question 69

Inflation rate is measured by the percentage change in the CPI.

Question 70

Below is the 2010 Tax Table for Singles. In 2010 Alexa was single and had a total income of $36,000. She took a deduction of $5000 and had a tax credit of $1250. Calculate the tax owed by Alexa.

A)$4231.25
B)$4043.75
C)$2981.25
D)$4462.50

Question 71

Below is the 2010 Tax Table for Married Couples Filing Jointly. In 2010 Jackie and Bob had a joint income of $156,000. They took a total deduction of $15,000 and had a tax credit of $2500. If they filed jointly, how much tax did they owe?

A)$27,980.00
B)$27,023.50
C)$32,480.00
D)$25,223.50