AAPC - Chapter 5 Review Exam Test with 100%
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When a loan is amortized, a relatively low percentage of the payment goes to
reduce the outstanding principal in the early years, and the principal
repayment's percentage increases in the loan's later years. T or F - -True
As a result of compounding, the effective annual rate on a bank deposit (or a
loan) is always equal to or greater than the nominal rate on the deposit (or
loan). T or F - -false
Midway through the life of an amortized loan, the percentage of the payment
that represents interest must be equal to the percentage that represents
repayment of principal. This is true regardless of the original life of the loan or
the interest rate on the loan. T or F - -False, the portion of the payment
representing interest declines, while the portion representing principal
repayment increases.
You plan to analyze the value of a potential investment by calculating the sum
of the present values of its expected cash flows. Which of the following would
lower the calculated value of the investment?
a. The cash flows are in the form of a deferred annuity, and they total to
$100,000. You learn that the annuity lasts for only 5 rather than 10 years,
hence that each payment is for $20,000 rather than for $10,000.
b. The discount rate increases.
c. The riskiness of the investment's cash flows decreases.
d. The total amount of cash flows remains the same, but more of the cash
flows are received in the earlier years and less are received in the later years.
, AAPC - Chapter 5 Review Exam Test with 100%
Verified Answers
e. The discount rate decreases. - -B. the discount rate increases
Your bank account pays a 6% nominal rate of interest. The interest is
compounded quarterly. Which of the following statements is CORRECT?
a. The periodic rate of interest is 1.5% and the effective rate of interest is 3%.
b. The periodic rate of interest is 6% and the effective rate of interest is greater
than 6%.
c. The periodic rate of interest is 1.5% and the effective rate of interest is
greater than 6%.
d. The periodic rate of interest is 3% and the effective rate of interest is 6%.
e. The periodic rate of interest is 6% and the effective rate of interest is also
6%. - -c. the periodic rate of interest is 1.5% and the effective rate of
interest is greater than 6%
Which of the following bank accounts has the lowest effective annual return?
a. an account that pays 8% nominal interest with monthly compounding.
b. an account that pays 8% nominal interest with annual compounding.
c. an account that pays 7% nominal interest with daily compounding.
d. an account that pays 7% nominal interest with monthly compounding.
e. an account that pays 8% nominal interest with daily compounding. - -
d. an account that pays 7% nominal interest with monthly compounding.
Verified Answers
When a loan is amortized, a relatively low percentage of the payment goes to
reduce the outstanding principal in the early years, and the principal
repayment's percentage increases in the loan's later years. T or F - -True
As a result of compounding, the effective annual rate on a bank deposit (or a
loan) is always equal to or greater than the nominal rate on the deposit (or
loan). T or F - -false
Midway through the life of an amortized loan, the percentage of the payment
that represents interest must be equal to the percentage that represents
repayment of principal. This is true regardless of the original life of the loan or
the interest rate on the loan. T or F - -False, the portion of the payment
representing interest declines, while the portion representing principal
repayment increases.
You plan to analyze the value of a potential investment by calculating the sum
of the present values of its expected cash flows. Which of the following would
lower the calculated value of the investment?
a. The cash flows are in the form of a deferred annuity, and they total to
$100,000. You learn that the annuity lasts for only 5 rather than 10 years,
hence that each payment is for $20,000 rather than for $10,000.
b. The discount rate increases.
c. The riskiness of the investment's cash flows decreases.
d. The total amount of cash flows remains the same, but more of the cash
flows are received in the earlier years and less are received in the later years.
, AAPC - Chapter 5 Review Exam Test with 100%
Verified Answers
e. The discount rate decreases. - -B. the discount rate increases
Your bank account pays a 6% nominal rate of interest. The interest is
compounded quarterly. Which of the following statements is CORRECT?
a. The periodic rate of interest is 1.5% and the effective rate of interest is 3%.
b. The periodic rate of interest is 6% and the effective rate of interest is greater
than 6%.
c. The periodic rate of interest is 1.5% and the effective rate of interest is
greater than 6%.
d. The periodic rate of interest is 3% and the effective rate of interest is 6%.
e. The periodic rate of interest is 6% and the effective rate of interest is also
6%. - -c. the periodic rate of interest is 1.5% and the effective rate of
interest is greater than 6%
Which of the following bank accounts has the lowest effective annual return?
a. an account that pays 8% nominal interest with monthly compounding.
b. an account that pays 8% nominal interest with annual compounding.
c. an account that pays 7% nominal interest with daily compounding.
d. an account that pays 7% nominal interest with monthly compounding.
e. an account that pays 8% nominal interest with daily compounding. - -
d. an account that pays 7% nominal interest with monthly compounding.
