How often interest is compounded

Problem 1. The terms of a loan indicate how often interest is compounded.

• True
• False

Problem 2. To compound daily means to compound 360 times a year.

• True
• False

Problem 3. The number of compounding periods for \$6,600.00 at 12% compounded quarterly for 15 years is 30 periods.

• True
• False

Problem 4. The effective rate of a transaction can be calculated by dividing the interest for one year by the principal.

• True
• False

Problem 5. The interest on \$4,200.00 at 8% compounded semiannually for 10 years is \$6,292.40.

• True
• False

Problem 6. The effective rate is:

• the stated rate
• the nominal rate
• the true semiannual rate
• the true annual rate
• none of the above

Problem 7. \$15,000.00 for 10 years compounded at 10% quarterly results in how many periods?

• 120
• 20
• 10
• 40
• none of the above

Problem 8. In a loan of 8% compounded quarterly, what is the periodic interest

• 2.5%
• 6%
• 2%
• 4%

Problem 9. Present value does not:

• find the present dollar amount
• use the tables
• know the present dollar amount
• know the future value
• none of the above

Problem 10. \$25,000.00 for 15 years compounded at 10% quarterly results in a periodic interest rate of:

• 10%
• 7%
• 5%
• 2.5%
• none of the above

Problem 11. The effective rate is:

• the interest for one year divided by the principal
• the interest for one year divided by the principal for three years
• the interest for one year divided by the annual rate
• never related to the compound table
• none of the above

Problem 12. Josh is having difficulty deciding whether to put his savings in the Mercantile Bank or the Boatmen's Bank. Mercantile offers a 10% rate compounded quarterly while Boatmen's offers 12% compounded semiannually. Josh has \$40,000.00 to invest and expects to withdraw the money at the end of 5 years. (Use Table 10-1 from the textbook.) The best deal is:

• Mercantile Bank
• Mercantile Bank for the last two years
• Boatmen's Bank for the first two years
• Boatmen's Bank
• none of the above

Problem 13. Don deposited \$27,500.00 in Trader's Bank at an interest rate of 12% compounded quarterly. (Use Table 10-1 from the textbook.) The effective rate was:

• 12.55%
• 12%
• 13%
• 14.0%
• none of the above

Problem 14. Lisa wants to attend the University of Colorado. She will need to have \$80,000.00 five years from today. Lisa is wondering what she will have to put in the bank today so she will have \$80,000.00 in five years. Her bank pays 10% compounded quarterly. By using Table  in the textbook, the amount Lisa will need to deposit is:

• \$48,281.68
• \$49,113.60
• \$48,821.60
• \$49,113.06
• none of the above

Problem 15. John estimates that he will need \$15,000.00 for new equipment in 10 years. John decided that he would put aside the money now so that in 10 years the \$15,000.00 will be available. His bank offers him 8% interest compounded semiannually. (Use Table 10-3 from the textbook.) How much must John invest?

• \$6,845.85
• \$36,175.71
• \$6,584.80
• \$6,845.08
• none of the above

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