The document contains 16 multiple choice questions related to finance concepts such as compound interest, present value, annuities, and loans. It also includes a short conceptual question about the differences between perpetuities and annuities versus perpetuities/annuities due. The questions cover calculating interest, amounts, payments, and values over time under different interest rates and compounding periods.

1. 9. One bank will pay you 5.4% interest compounded annually. If you invest $1000 today, what
simple interest rate would you need to earn at a competing bank to have the same amount of
money in 5 years? A. 5.7% B. 6.0% C. 6.4% D. 6.7% E. 7.0%
10. One perpetuity pays $1000 per year and starts in 1 year. Another perpetuity pays $1000 per
year and starts in 5 years. What’s the difference in the present values of the two perpetuities
today if the discount rate is 10%? A. $3012 B. $3170 C. $3487 D. $3566 E.
$3791
11. An account was opened with $1,000 10 years ago. Today, the account balance is $1,800. If
the account paid interest compounded semiannually, how much interest on interest was
earned? A. $219.20 B. $212.27 C. $203.49 D. $198.78 E. $194.60
12. If a bank offers to pay you a 3% APR compounded continuously, how much do you need to
deposit today to have $10,000 in 20 years? A. $5212 B. $5384 C. $5488 D.
$5520 E. $5537
13. You buy a car today for $27,000. If you finance it with a 6% APR, 4 year loan, what will
your monthly payments be? Assume monthly compounding.A. $692 B. $681 C.
$658 D. $634E. $603
14. You buy a car today for $27,000. If you finance it with a 6% APR, 4 year loan, what is the
difference in your payments if you agree to pay at the beginning of each month rather than at
the end? Assume monthly compounding.A. $3.15 B. $3.39 C. $3.77 D. $3.87E. $3.98
15. You are saving to buy a car. You can save $200 per month and would like to buy the car in 4
years. How much more car can you afford if you make your deposits at the beginning of each
month rather than at the end? Use 6% APR with monthly compounding.A. $41
B. $44 C. $54 D. $57 E. $64
16. An investment will pay you $4000 each year for the next 8 years. The investment yields 6%
APR, compounded quarterly. How much is the investment worth in 8 years?A. $37,723 C.
$39,590 E. $40,440B. $38,600 D. $39,784Important information: In any of the
“relationship” concept questions below, assume all other variables stay the same
17. From our discussion/notes/you working problems, which of these is true? I. the difference
between a perpetuity and a perpetuity due is one payment II. the difference
between an annuity and an annuity due is one period of interest A. I only C. I and
II B. II only D. neither is true
Solution
9. Answer: B: 6.00%

2. Compounded Annually: 1000 x (1.054)^5 = $1,300
Simple Interest: 1000 + [1000 x 6.00% x 5] = $ 1,300.
10. Answer: E: $3,791.
Present Value of Perpetuity starting payment from Year 1 = Annuity / Rate of Interest =
1000/10% = $ 10,000
Present Value of Perpetuity starting payment from Year 5 = Annuity / (Rate x (1+Rate) ^
Delayed Period = (1000/(0.1*(1.1)^5)) = $ 6,209.
Difference = $ 3,791.
11. Answer: C : $203.49
Rate of Interest: 1000 x ((1+r/2)^20) = 1800; where by solving for 'r' we get, r = 5.97% P.A.
Compounded Semi annually.
Simple Interest @ 5.97% P.A. would have been: $ 1,000 x 5.97% x 10 Years = $ 597.
Hence the Interest on Interest would be $ 203.49.
12.Answer: C: $5,488
Assume the principle amount to be 'Y'.
10,000 = Y x [(1+(0.03/365))^(365 Days x 20 Years)]
Solving for Y we get $ 5,488.
13.Answer: D: $ 634
EMI = 27000 / PVAF (0.05%, 48) = $ 634.10
14. Answer: A; $ 3.15
EMI in Advance = 27000 / PVAF (0.05%,47) = $ 630.94
Difference = $ 3.16
15. Answer: C: $ 54.
Advance Deposits: Final Value = $ 10,873.66
End Deposits: Final Value = $ 10,820
Difference: $ 54.
Deposit at the End
Deposit at the beginning
6.00
6.00
Opening
Interest
Deposit
Total
Opening
Deposit

3. Total
Interest
total
-
-
200
200
-
200
200.00
1.00
201.00
200.00
1.00
200
401
201.00
200
401.00
2.01
403.01
401.00
2.01
200
603
403.01
200
603.01
3.02
606.02
603.01
3.02
200
806
606.02
200

4. 806.02
4.03
810.05
806.02
4.03
200
1,010
810.05
200
1,010.05
5.05
1,015.10
1,010.05
5.05
200
1,215
1,015.10
200
1,215.10
6.08
1,221.18
1,215.10
6.08
200
1,421
1,221.18
200
1,421.18
7.11
1,428.28
1,421.18
7.11
200
1,628
1,428.28
200

5. 1,628.28
8.14
1,636.42
1,628.28
8.14
200
1,836
1,636.42
200
1,836.42
9.18
1,845.61
1,836.42
9.18
200
2,046
1,845.61
200
2,045.61
10.23
2,055.83
2,045.61
10.23
200
2,256
2,055.83
200
2,255.83
11.28
2,267.11
2,255.83
11.28
200
2,467
2,267.11
200

6. 2,467.11
12.34
2,479.45
2,467.11
12.34
200
2,679
2,479.45
200
2,679.45
13.40
2,692.85
2,679.45
13.40
200
2,893
2,692.85
200
2,892.85
14.46
2,907.31
2,892.85
14.46
200
3,107
2,907.31
200
3,107.31
15.54
3,122.85
3,107.31
15.54
200
3,323
3,122.85
200

7. 3,322.85
16.61
3,339.46
3,322.85
16.61
200
3,539
3,339.46
200
3,539.46
17.70
3,557.16
3,539.46
17.70
200
3,757
3,557.16
200
3,757.16
18.79
3,775.94
3,757.16
18.79
200
3,976
3,775.94
200
3,975.94
19.88
3,995.82
3,975.94
19.88
200
4,196
3,995.82
200

8. 4,195.82
20.98
4,216.80
4,195.82
20.98
200
4,417
4,216.80
200
4,416.80
22.08
4,438.89
4,416.80
22.08
200
4,639
4,438.89
200
4,638.89
23.19
4,662.08
4,638.89
23.19
200
4,862
4,662.08
200
4,862.08
24.31
4,886.39
4,862.08
24.31
200
5,086
4,886.39
200

9. 5,086.39
25.43
5,111.82
5,086.39
25.43
200
5,312
5,111.82
200
5,311.82
26.56
5,338.38
5,311.82
26.56
200
5,538
5,338.38
200
5,538.38
27.69
5,566.07
5,538.38
27.69
200
5,766
5,566.07
200
5,766.07
28.83
5,794.90
5,766.07
28.83
200
5,995
5,794.90
200

10. 5,994.90
29.97
6,024.88
5,994.90
29.97
200
6,225
6,024.88
200
6,224.88
31.12
6,256.00
6,224.88
31.12
200
6,456
6,256.00
200
6,456.00
32.28
6,488.28
6,456.00
32.28
200
6,688
6,488.28
200
6,688.28
33.44
6,721.72
6,688.28
33.44
200
6,922
6,721.72
200

11. 6,921.72
34.61
6,956.33
6,921.72
34.61
200
7,156
6,956.33
200
7,156.33
35.78
7,192.12
7,156.33
35.78
200
7,392
7,192.12
200
7,392.12
36.96
7,429.08
7,392.12
36.96
200
7,629
7,429.08
200
7,629.08
38.15
7,667.22
7,629.08
38.15
200
7,867
7,667.22
200

12. 7,867.22
39.34
7,906.56
7,867.22
39.34
200
8,107
7,906.56
200
8,106.56
40.53
8,147.09
8,106.56
40.53
200
8,347
8,147.09
200
8,347.09
41.74
8,388.83
8,347.09
41.74
200
8,589
8,388.83
200
8,588.83
42.94
8,631.77
8,588.83
42.94
200
8,832
8,631.77
200

13. 8,831.77
44.16
8,875.93
8,831.77
44.16
200
9,076
8,875.93
200
9,075.93
45.38
9,121.31
9,075.93
45.38
200
9,321
9,121.31
200
9,321.31
46.61
9,367.91
9,321.31
46.61
200
9,568
9,367.91
200
9,567.91
47.84
9,615.75
9,567.91
47.84
200
9,816
9,615.75
200

14. 9,815.75
49.08
9,864.83
9,815.75
49.08
200
10,065
9,864.83
200
10,064.83
50.32
10,115.16
10,064.83
50.32
200
10,315
10,115.16
200
10,315.16
51.58
10,366.73
10,315.16
51.58
200
10,567
10,366.73
200
10,566.73
52.83
10,619.57
10,566.73
52.83
200
10,820
10,619.57
200

15. 10,819.57
54.10
10,873.66
17. Answer: C: Both I and II.
Payments made under an ordinary annuity/Perpetuity occur at the end of the period while
payments made under an annuity?Perpetuity due occur at the beginning of the period,thereby the
differnce being a period of Payment/Interest.
Deposit at the End
Deposit at the beginning
6.00
6.00
Opening
Interest
Deposit
Total
Opening
Deposit
Total
Interest
total
-
-
200
200
-
200
200.00
1.00
201.00
200.00
1.00
200
401
201.00
200
401.00

16. 2.01
403.01
401.00
2.01
200
603
403.01
200
603.01
3.02
606.02
603.01
3.02
200
806
606.02
200
806.02
4.03
810.05
806.02
4.03
200
1,010
810.05
200
1,010.05
5.05
1,015.10
1,010.05
5.05
200
1,215
1,015.10
200
1,215.10

17. 6.08
1,221.18
1,215.10
6.08
200
1,421
1,221.18
200
1,421.18
7.11
1,428.28
1,421.18
7.11
200
1,628
1,428.28
200
1,628.28
8.14
1,636.42
1,628.28
8.14
200
1,836
1,636.42
200
1,836.42
9.18
1,845.61
1,836.42
9.18
200
2,046
1,845.61
200
2,045.61

18. 10.23
2,055.83
2,045.61
10.23
200
2,256
2,055.83
200
2,255.83
11.28
2,267.11
2,255.83
11.28
200
2,467
2,267.11
200
2,467.11
12.34
2,479.45
2,467.11
12.34
200
2,679
2,479.45
200
2,679.45
13.40
2,692.85
2,679.45
13.40
200
2,893
2,692.85
200
2,892.85

19. 14.46
2,907.31
2,892.85
14.46
200
3,107
2,907.31
200
3,107.31
15.54
3,122.85
3,107.31
15.54
200
3,323
3,122.85
200
3,322.85
16.61
3,339.46
3,322.85
16.61
200
3,539
3,339.46
200
3,539.46
17.70
3,557.16
3,539.46
17.70
200
3,757
3,557.16
200
3,757.16

20. 18.79
3,775.94
3,757.16
18.79
200
3,976
3,775.94
200
3,975.94
19.88
3,995.82
3,975.94
19.88
200
4,196
3,995.82
200
4,195.82
20.98
4,216.80
4,195.82
20.98
200
4,417
4,216.80
200
4,416.80
22.08
4,438.89
4,416.80
22.08
200
4,639
4,438.89
200
4,638.89

21. 23.19
4,662.08
4,638.89
23.19
200
4,862
4,662.08
200
4,862.08
24.31
4,886.39
4,862.08
24.31
200
5,086
4,886.39
200
5,086.39
25.43
5,111.82
5,086.39
25.43
200
5,312
5,111.82
200
5,311.82
26.56
5,338.38
5,311.82
26.56
200
5,538
5,338.38
200
5,538.38

22. 27.69
5,566.07
5,538.38
27.69
200
5,766
5,566.07
200
5,766.07
28.83
5,794.90
5,766.07
28.83
200
5,995
5,794.90
200
5,994.90
29.97
6,024.88
5,994.90
29.97
200
6,225
6,024.88
200
6,224.88
31.12
6,256.00
6,224.88
31.12
200
6,456
6,256.00
200
6,456.00

23. 32.28
6,488.28
6,456.00
32.28
200
6,688
6,488.28
200
6,688.28
33.44
6,721.72
6,688.28
33.44
200
6,922
6,721.72
200
6,921.72
34.61
6,956.33
6,921.72
34.61
200
7,156
6,956.33
200
7,156.33
35.78
7,192.12
7,156.33
35.78
200
7,392
7,192.12
200
7,392.12

24. 36.96
7,429.08
7,392.12
36.96
200
7,629
7,429.08
200
7,629.08
38.15
7,667.22
7,629.08
38.15
200
7,867
7,667.22
200
7,867.22
39.34
7,906.56
7,867.22
39.34
200
8,107
7,906.56
200
8,106.56
40.53
8,147.09
8,106.56
40.53
200
8,347
8,147.09
200
8,347.09

25. 41.74
8,388.83
8,347.09
41.74
200
8,589
8,388.83
200
8,588.83
42.94
8,631.77
8,588.83
42.94
200
8,832
8,631.77
200
8,831.77
44.16
8,875.93
8,831.77
44.16
200
9,076
8,875.93
200
9,075.93
45.38
9,121.31
9,075.93
45.38
200
9,321
9,121.31
200
9,321.31

26. 46.61
9,367.91
9,321.31
46.61
200
9,568
9,367.91
200
9,567.91
47.84
9,615.75
9,567.91
47.84
200
9,816
9,615.75
200
9,815.75
49.08
9,864.83
9,815.75
49.08
200
10,065
9,864.83
200
10,064.83
50.32
10,115.16
10,064.83
50.32
200
10,315
10,115.16
200
10,315.16

27. 51.58
10,366.73
10,315.16
51.58
200
10,567
10,366.73
200
10,566.73
52.83
10,619.57
10,566.73
52.83
200
10,820
10,619.57
200
10,819.57
54.10
10,873.66