Problem 1. Define simple interest and compound interest. Explain the difference between each.
Problem 2. Define annual percentage rate (APR). What effect does frequency of compounding have on the annual percentage yield (APY)? What condition would exist if the APR = APY?
Problem 3. What is an ordinary annuity? What is an annuity due? Which is more prevalent in apartment leases?
Problem 4. A very smart child understands annuities and wishes to invest part of his allowance each week to save up for college. The child's parents figure, they would kick in with matching funds, so each month, he deposits a total of $50. Let us suppose that the child continues from age 5 to age 20. Given a fixed APR of 5%, what might the child expect to have at age 20?
Problem 5. What is an example of an installment loan? What type of installment loan does not require the borrower to pay off the balance?
Problem 6. Explain the difference between a fixed rate and adjustable rate mortgage.