Test bank for mathematics of finance 8th editon

Test Bank for Mathematics of Finance 8th Editon

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1.

Bill takes out a loan at j4 = 6%, paid back with quarterly payments for 4.5 years. In the first payment, the principal repaid is $401.87. What is the amount of the loan? (Answer to the nearest dollar)

A. $6298 B. $7234 C. $8234 D. $8358 2.

A loan at j4 = 8.6% is being repaid over n-quarters, with quarterly payments of $647.18. The portion of the 9th payment that goes towards principal is $349.23. What is the value of n?

A. 29 B. 37 C. 38 D. 39 3.

A loan is taken out at j12 = 18% and is paid back with monthly payments of $279.00, plus a smaller concluding payment. With one month left on the loan, the outstanding balance is $268.66. What is the size of the final loan payment?

A. $279.00 B. $272.69 C. $268.66 D. $264.63

4.

A loan is being amortized with 25 quarterly payments. The principal portion of the 16 th payment is $609.34. If j4 = 10%, what is original amount of the loan? (Answer to the nearest dollar) You are given:

,

A. $7752 B. $14,021 C. $14,371 D. $26,643 5.

A company borrows $100,000 with interest at j12 = 9%. The loan is to be amortized by monthly payments of $1550 for as long as necessary. A final smaller payment will be calculated so the loan will be exactly repaid. What is the amount of interest paid in the 2nd monthly payment of $1550?

A. $806.00 B. $755.63 C. $745.42 D. $744.00 6.

A company borrows $100,000 with interest at j12 = 9%. The loan is to be amortized by monthly payments of $1550 for as long as necessary. A final smaller payment will be calculated so the loan will be exactly repaid. The outstanding balance immediately after the 88th payment is $796.44. What is the value of the 89th and final payment?

A. $790.51 B. $796.44 C. $802.41 D. $808.43 7.

A loan is being amortized over n-years with monthly payments of $295.32. The rate of interest on the loan is j12 = 12%. The principal repaid in the 25th payment is $206.41. What is the size of the loan?

(Answer to the nearest dollar)

A. $13,276 B. $13,437 C. $16,095 D. $16,256

8.

A loan is being amortized over n-years with monthly payments of $295.32. The rate of interest on the loan is j12 = 12%. The principal repaid in the 25th payment is $206.41. The outstanding balance after 25 payments (months) is $8684.79. What is the outstanding balance immediately after the 26th payment?

A. $8389.47 B. $8476.32 C. $8478.38 D. $8597.94 9.

A loan is being repaid by 20 equal semi-annual installments. The principal portion of the 8th payment is $245.29 and the interest portion is $254.71. What interest rate, j2 is being charged on the loan?

A. 12.23% B. 11.26% C. 10.96% D. 10.65% 10. A loan is being amortized with 20 annual payments of principal and interest. The principal repaid in the 13th payment is $801.45 and the interest portion of the 13th payment is $698.55. What is the effective annual rate of interest, j1 being charged on this loan?

A. 11.01% B. 10.02% C. 9.37% D. 8.15% 11. A loan of size A is to be amortized by monthly payments of $1000. The rate of interest on the loan is j12 = 18%. The outstanding balance immediately after the 4th monthly payment is $12,000. How much principal is repaid in the 12th monthly payment?

A. $923.72 B. $914.50 C. $910.07 D. $896.62

12. A loan of $A is repaid over 10 years with quarterly payments at j4 = 10%. The principal portion of the 12th payment is $300.52. What is A? (Answer to the nearest dollar)

A. $15,438 B. $15,061 C. $11,979 D. $9,898 13. The principal portion of the 20th payment of $R on an amortized loan is $340.95 and the principal portion of the 21st payment of $R is $348.11. If there are 55 payments in total, what is R?

A. $647.25 B. $659.69 C. $702.43 D. $720.47 14. A loan is amortized at j2 = 12% with semi-annual payments of $R. The outstanding balance of the loan after 13 payments is $7049.29 and the outstanding balance after 14 payments is $6377.10. What is R?

A. $1095.15 B. $1054.82 C. $805.58 D. 672.19 15. Exactly five years ago, a $100,000 condominium was purchased by making a $65,000 down payment and taking out a $35,000 mortgage. The mortgage interest rate was j2 = 8% and monthly mortgage payments of $267.10 have been made at the end of each month for the past five years. What is the purchaser's equity (buyer's equity) position today? (Answer to nearest dollar)

A. $32,249 B. $67,249 C. $67,751 D. $80,441

16. The interest portion of the 9th payment of $R on an amortized loan repaid monthly is $8.42. The interest portion of the 10th payment of $R is $7.77. If interest rate is j12 = 18%. What is R?

A. $12.03 B. $35.72 C. $51.75 D. $60.30 17. A loan of $A is taken out at j12 = 6% and is repaid with monthly payments of $184.91. The principal portion of the 12th monthly payment is $115.00. What is A? (Answer to the nearest dollar)

A. $12,564 B. $12,684 C. $15,210 D. $15,318 18. A loan is being repaid with level annual payments of $1040 on July 30th of each year. The last $1040 loan payment is to be made on July 30, 2015 and the interest portion of this final payment is $40. What is the principal portion of the payment made on July 30, 2010?

A. $821.93 B. $828.03 C. $854.80 D. $863.84 19. A $200,000 home is financed by paying by making a $60,000 down payment and taking out a $140,000 mortgage. The equivalent mortgage interest rate is j12 = 7.87% and monthly mortgage payments of $1068 are to be made. What is the buyer's equity when the mortgage renews 5 years from today?

(Answer to the nearest dollar)

A. $129,028 B. $70,972 C. $61,792 D. $10,972

20. A loan is being repaid over 8 years with 32 quarterly payments of $362.19 at j4 = 8%. Under the amortization method, how much of the 3rd payment goes towards interest on the loan?

A. $158.24 B. $162.24 C. $199.95 D. $203.95 21. The interest portion of the 10th payment of $R on an amortized loan repaid monthly is $7.82, while the principal portion of the 10th payment $43.93. If interest rate on the loan is j12 = 18%, what is the term of the loan (n) in months? (Answer to the nearest month)

A. 20 B. 21 C. 136 D. 137 22. A debt is amortized at j4 = x%by payments of $300 per quarter. You are given that the outstanding balance is $6279.09 just after the kth payment and the outstanding balance is $6136.07 just after the (k + 1)st payment. What is x?

A. 14.30% B. 7.22% C. 28.88% D. 10.00% 23. A loan is to be repaid with n equal monthly payments. If the sum-of-digits method is applied, the sum of the amount of interest paid in the first (I1) and last month (In) is equal to the half of the total amount interest paid. What is the value of n?

A. 4 B. 5 C. 6 D. Value of n cannot be determined.

24. The final payment of a loan with semi-annual payments consists of $5 in interest and $250 in repayment of principal. What is the nominal rate of interest compounded semi-annually, j2 that is being charged on this loan?

A. j2 < 1.9% B. 1.9% ≤ j2 < 2.9% C. (C).2.9% ≤ j2 < 3.9% D. j2 ≥ 3.9% A $10,000 loan is to be repaid with level payments of $600 at the end of every 3 months for as long as necessary. The loan interest rate is j4 = 6%.

25. What is the interest portion of the third (3rd) payment?

A. $129.44 B. $136.40 C. $156.85 D. $470.56 26. At the end of 2-years, the loan is refinanced at j4 = 4% and paid back over 3 more years. What is the new quarterly payment?

A. $581.47 B. $551.33 C. $568.89 D. $520.40 27. A loan is being repaid with monthly payments of $250 at the end of each month. The loan interest rate is j12 = 7.5%. The outstanding loan balance immediately after the 22nd payment is $5404.80. What is the principal portion of the 30th payment?

A. $227.27 B. $35.29 C. $225.86 D. $214.71

28. A loan of size A is to be amortized by monthly payments of $1000. The rate of interest on the loan is j12 = 18%. The outstanding balance immediately after the 4th monthly payment is $12,000. What is A? (Answer to the nearest dollar)

A. $15,075 B. $15,161 C. $16,000 D. $16,091 29. Meg A. Bux takes out a loan for $10,000 at j4 = 10%, to be repaid with quarterly payments of $398.38.

What is the outstanding balance of the loan just before the 27th payment is made? You are given:

= 36.0117 and

= 37.912.

A. $4374.62 B. $4656.59 C. $4773.00 D. $5131.66 30. A company borrows $100,000 with interest at j12 = 9%. The loan is to be amortized by 88 monthly payments of $1550, plus a final smaller payment. What is the outstanding balance after 40 payments have been made?

A. $63,361.21 B. $62,842.79 C. $62,286.41 D. $28,007.93 31. Jim buys a car worth $20,000. He makes a down payment of $1000 and repays the balance with equal monthly payments of $450 at the end of each month for as long as is necessary. If interest on the loan is j12 = 6%, what is the outstanding balance after 24 payments have been made?

A. $9,971.66 B. $10,153.29 C. $11,098.82 D. $11,262.75

32. A loan of A is to be amortized over 10 years with semi-annual payments. The interest rate on the loan is j2 = 10% and the semi-annual payment is R. After 3 years, the interest rate changes to j2 = 12%.

Which of the following will give the correct outstanding balance after 3 years?

A. Option A B. Option B C. Option C D. Option D 33. A loan of $12,000 is being repaid over 5-years with the following payment history: • &#61472;Quarterly payments of $769.77 for the first two years at j4 = 10% • &#61472;Loan refinanced at j4 = 8%, with quarterly payments dropping to $746.65 for one year • &#61472;Loan refinanced again, this time at j4 = 6% What is the outstanding balance of the loan at this point in time (after 3 years, with 8 payments remaining)?

A. $5469.57 B. $5589.37 C. $5638.94 D. $6023.86

34. A loan is taken out at j12 = 18% and is amortized with monthly payments of $360.37 for 10 years. After 4 years, the loan is refinanced at j12 = 12% and the new monthly payment is $308.90. Which of the following would give the correct outstanding balance after 4 years (48 payments)?

a. 360.37

b. 360.37

c. 308.90

d. 308.90

A. a only B. a and d C. b only D. b and c 35. A house is purchased with a down payment of $25,000 with the remaining $175,000 financed through a mortgage at j12 = 9% with monthly payments of $1500 for as long as necessary. What is the seller's equity after 15 years (180 payments)?

A. $118,413 B. $104,049 C. $95,951 D. $70,951 36. A loan of $25,000 is to be repaid with quarterly payments of $1500 for 3 years (12 payments) followed by quarterly payments of $1000 for as long as is needed. If the interest rate on the loan is j4 = 10%, what is the outstanding balance after 13 payments? You are given:

= 13.79555

A. $11,928.89 B. $12,252.12 C. $12,769.45 D. $15,462.78 37. A house is purchased by a couple who make a down payment of $20,000 and finance the remaining $100,000 through a mortgage at j12 = 6% with monthly payments of $716.43 for 20 years. What is the buyer's equity after 10 years? You are given:

A. $35,469 B. $44,531 C. $55,469 D. $64,531

= 90.0735;

= 163.8796

38. A loan of $A is taken out and is to be repaid with level monthly payments over n-years at j12 = 18%.

The outstanding balance after 75 payments is $16,855.14 and after 76 payments is $16,590.17. What is the monthly payment?

A. $252.83 B. $264.97 C. $513.82 D. D) $517.80 39. A loan of $36,000 is to be repaid by quarterly payments over 10 years at j4 = 8%. The first payment is $1000, the 2nd payment is $1020, the 3rd payment is $1040 and so on. The principal repaid in the first payment is $280. What is the outstanding balance of the loan after the 2nd payment?

A. $35,414.40 B. $35,420.00 C. $35,434.40 D. $35,700.00 40. A debt is amortized at j4 = x%by payment of $300 per quarter. You are given that the outstanding balance is $6279.09 just after the kth payment and the outstanding balance is $6136.07 just after the (k+1)st payment. What is x?

A. 7.22% B. 10.00% C. 14.30% D. 28.88% 41. A loan of $3000 is to be repaid by annual payments of $400 for 5 years followed by annual payments of $450 for as long as necessary (first payment one year from now). If the interest rate on the loan is j1 = 7%, what is the outstanding balance immediately after the 8th payment?

A. $1407.56 B. $1050.64 C. $889.89 D. $537.65

42. A loan is being repaid over 8 years with 32 quarterly payments of $362.19 at j4 = 8%. Under the amortization method, what is the outstanding balance of the loan immediately after the 15th payment?

A. $5326.58 B. $5261.81 C. $5176.37 D. $4653.87 43. A $22,500 loan is being repaid with annual payments of $4000 at the end of each year for 5 years, followed by annual payments of $2000 thereafter for as long as is needed. The interest rate is j1= 7%.

What is the outstanding balance of the loan just after the 6th payment?

A. $5,153.27 B. $7,153.27 C. $8,763.47 D. $10,763.47 44. A couple purchases a $400,000 home by paying $150,000 cash and financing the rest with a mortgage.

They make weekly mortgage payments of $400, first payment made one week after the mortgage loan is taken out. The mortgage rate is j2 = 7%, locked in for 5-years. What is the couple's equity when the mortgage renews? (Answer to the nearest dollar)

A. $228,602 B. $148,963 C. $235,104 D. $171,398

45. A loan of $20,000 that is being repaid over 10-years has the following payment history: • &#61472;semi-annual payments of $1200 were made for the first two years at j2 = 4% • &#61472;the loan was then refinanced at j2 = 6%, with semi-annual payments dropping to $1000 for next three years What is the outstanding balance of the loan at this point in time (after 10payments)?

Given:

= 6.30812,

= 4.12161,

= 6.46841,

= 4.18363

A. $13,475.50 B. $13,887.76 C. $10,502.48 D. $14,435.27 46. Mr. Jones takes out a loan for $10,000 at j4 = 10%, to be repaid with $398.38 at the end of each quarter.

What is the outstanding balance of the loan just before the 27th payment is made? You are given:

= 36.0117 and

= 37.912.

A. $4374.62 B. $4656.59 C. $4773.00 D. $5131.66 47. A woman takes out a loan to be paid back over 4 years at j12 = 6% with monthly payments of 281.82.

After 14 payments, the outstanding balance on the loan is $8791.53. She then misses the next 4 payments (from time 15 to 18). She begins making regular monthly payments at time 19. If she still wants to pay back her loan in full by the end of 4 years, what is the size of her new monthly payment?

A. $324.30 B. $321.08 C. $322.68 D. $311.48

48. A house is purchased by a couple who make a down payment of $20,000 and finance the remaining $100,000 through a mortgage at j2 = 6% with monthly payments of $712.19 for 20 years. What is the buyer's equity after 10 years? (Answer to the nearest dollar) You are given: and

= 90.3743

= 163.2259, where i is the equivalent monthly rate of j2 = 6%.

A. $44,531 B. $35,469 C. $64,364 D. $55,636 49. Sandy takes out a loan of $22,000 at j12 = 9%, repaid over 5 years with monthly payments. After 24 payments, the outstanding balance on the loan is $14,361.35. Just after the 24th payment, Sandy makes a lump sum payment of $3000 and refinances the loan with monthly payments for two more years at the same interest rate. What is the new monthly payment?

A. $361.29 B. $473.39 C. $519.04 D. $656.09 50. A woman takes out a loan to be paid back over 4 years at j12 = 6% with monthly payments of $281.82.

After 14 payments, the outstanding balance on the loan is $8791.53. The woman then misses the next 3 payments (from time 15 to 17). She begins making regular monthly payments at time 18. If she still intends to pay back her loan in full by the end of 4 years, what is the size of her new monthly payment? (she has 31 payments left)

A. $306.85 B. $308.39 C. $311.48 D. $313.03

51. A company borrows $100,000 with interest at j12 = 9% to be paid back by monthly payments. After 5 years, interest rates have dropped to j12 = 6% and the company wishes to refinance their loan. The outstanding balance of the loan after 5 years (60 payments) is $39,660.90. If the company refinances the loan, they are subject to a penalty equal to 3 times one month's interest on the outstanding balance. Adding the penalty to the loan balance, and assuming the company will pay off the loan over 29 more months, what is the new monthly payment? You are given:

= 25.9759

= 26.9330

A. $1494.66 B. $1505.71 C. $1549.74 D. $1561.19 52. A large loan is to be repaid over 25 years with monthly payments. After 3 years, the outstanding balance of the loan is $96,329.18 and the loan is refinanced at j12 = 6%. If the new monthly payment is $700, what refinancing penalty was assessed? You are given:

= 146.3969

A. $3670.82 B. $6148.65 C. $8644.80 D. $12,315.63 53. A loan of $10,000 is to be repaid over 6 years with equal monthly payments at j12 = 15%. After 4 years, the outstanding balance on the loan is $4361.00. The loan carries a prepayment penalty equal to 3 times one month's interest on the outstanding balance. The borrower refinances the loan with another bank over the remaining 2 years at j12 = 12%. Taking into account the penalty, what is the new monthly payment?

A. $219.38 B. $217.79 C. $212.99 D. $211.45

54. Anderson takes out a loan of $22,000 at j12 = 9% to be repaid over 5 years with monthly payments.

After 24 payments, the outstanding balance on the loan is $14,361.35, but Anderson misses the next 10 monthly payments. At the end of the 34th month, he makes a lump sum payment of $3000 and refinances the loan such that he still pays off the loan at the end of 5 years. If the interest rate is unchanged, what is the new monthly payment (first payment made at time 35)?

A. $473.39 B. $519.04 C. $529.92 D. $549.13 55. A corporation takes out a $100,000 loan to be repaid over 6-years with quarterly payments at j4 = 10%.

Under the amortization method, the outstanding balance of the loan after 4 years is $40,090.26. At this time the company refinances the loan, without penalty. The new loan rate is j4 = 8% and the company makes an additional lump sum payment of $5000. What is the new quarterly payment, assuming the loan is still paid back in full after 6 years?

A. $4790.16 B. $4893.95 C. $5472.71 D. $5591.28 56. A woman takes out a loan to be paid back over 4 years at j12 = 6% with monthly payments of 281.82.

After 14 payments, the outstanding balance on the loan is $8791.53. She then misses the next 4 payments (from time 15 to 18). She begins making regular monthly payments at time 19. If she still wants to pay back her loan in full by the end of 4 years, what is the size of her new monthly payment?

A. $311.48 B. $321.08 C. $322.68 D. $324.30

57. 57. A family buys furniture for $1400. They take out a loan for $1400 and repay it with monthly payments over 4 years at j12 = 13%. If they wish to pay refinance the loan early, they face a penalty equal to 3 months interest on the outstanding balance. After 18 payments they decide to refinance with their local bank at j12 = 6%. If they decide to still pay off the loan in full after a total of 4-years, what is the new monthly payment? You are given: OB18 = $957.60.

A. $34.97 B. $35.57 C. $37.56 D. $40.66 58. Jim takes out a $10,000 loan at j4 = 10%, to be paid back with quarterly payments over 5 years. At the end of 2 years, the outstanding balance is $6,580.07. At that time, Jim makes a lump sum payment of $500 and then refinances the loan at j4 = 8%. He also intends to repay the remainder of the loan over just 2 more years. What is the new quarterly payment?

A. $898.24 B. $847.97 C. $829.99 D. $574.93 59. A company borrows $100,000 with interest at j12 = 9% to be paid back by monthly payments. After 5 years, interest rates have dropped to j12 = 6% and the company wishes to refinance their loan. The outstanding balance of the loan after 5 years (60 payments) is $39,660.90. If the company refinances the loan, they are subject to a penalty equal to 3 times one month's interest on the outstanding balance. Adding the penalty to the loan balance, and assuming the company will pay off the loan over 29 more months, what is the new monthly payment? You are given:

A. $1494.67 B. $1505.71 C. $1549.74 D. $1561.19

= 25.9759

= 26.9330

60. A loan is being repaid with monthly payments of $1349.59 for 20 years using the sum of digits method.

The total interest over the life of the loan is $173,901.60. What is the interest rebate after 140 payments? (Answer to the nearest dollar)

A. $30,367 B. $59,350 C. $72,459 D. $101,443 61. A loan for $15,000 is taken out from a loan company that uses the sum of digits method. It is to be paid back over 15 years with semi-annual payments of $920.87 at j2 = 9%. What is the interest portion of the 11th payment?

A. $420.87 B. $515.90 C. $526.08 D. $543.06 62. A loan for $15,000 is taken out from a loan company that uses the sum of digits method. It is to be paid back over 15 years with semi-annual payments of $920.87 at j2 = 9%. What is the outstanding balance of the loan after 16 payments?

A. $10,041.13 B. $9,633.83 C. $9,413.99 D. $9,199.38 63. A loan of $15,000 at j2 = 9%, is to be paid back over 10 years with semi-annual payments of $1153.14.

The total interest paid over the life of the loan is $8062.83. Using the sum of digits method, what is the outstanding balance of the loan after 6 years (12 payments)?

A. $6230.37 B. $7606.03 C. $7842.95 D. $9225.12

64. A corporation takes out a $100,000 loan to be repaid over 6-years with quarterly payments at j4 = 10%.

The total interest to be paid on the loan over the 6 years is $34,190.77. Using the sum of digits method, the outstanding balance of the loan immediately after the 16th payment is $40,627.40. How much of the 17th payment goes towards interest using the sum of digits method?

A. $1218.82 B. $1025.72 C. $1015.69 D. $911.75 65. A loan at j12 = 6%, is being repaid with monthly payments of $154.66 for 5 years using the sum of digits method. The total interest over the life of the loan is $1279.60. What is the outstanding balance of the loan after 2 years?

A. $5083.83 B. $5102.07 C. $5357.99 D. $5567.76 66. A $6000 loan is to be repaid with monthly payments of $142.74 over 5-years at j12 = 15%. What is the principal portion of the 30th monthly payment using the sum of digits method?

A. $43.44 B. $89.97 C. $99.30 D. $100.70 67. A $60,000 loan is paid back over 10 years with monthly payments of $790.18 at j12 = 9.918%. What is the outstanding balance of the loan after 4 years using the sum of digits method? (Answer to the nearest dollar) You are given: Total interest = $34,821.12.

A. $42,110 B. $44,288 C. $51,252 D. $56,890

68. A corporation takes out a $100,000 loan to be repaid over 6-years with quarterly payments of $5591.28 at j4 = 10%. The total interest to be paid on the loan over the 6 years is $34,190.72 Under the sum of digits method, what is the outstanding balance after 10 payments?

A. $65,367 B. $66,311 C. $72,010 D. $78,278 69. A 5-year $6000 loan is to be repaid with monthly payments of $115.99 at j12 = 6%. Just after making the 30th payment, the borrower has the balance refinanced at j12 = 3% with the term of the loan to remain unchanged. If the balance is determined by the sum-of-digits method, what will be the new monthly payment?

A. $121.30 B. $118.20 C. $115.99 D. $112.09 70. A loan of $10,000 is repaid over 10 years with annual payments of $1358.68 at j1 = 6%. How much of the 6th payment goes towards interest using the sum of digits method?

A. $391.29 B. $343.39 C. $326.07 D. $260.86 71. A loan is being repaid over 8 years with 32 quarterly payments of $362.19 at j4 = 8%. If the total amount of interest paid over the life of the loan is $3090.08, what is the outstanding balance of the loan immediately after the 18th payment using the sum-of-digits method?

A. $4982.87 B. $4456.16 C. $4384.76 D. $4069.90

72. A 10 year $25,430 loan is being paid off with semi-annual payments of $3679. The total interest over the life of the loan is $48,150. What is the outstanding balance of the loan after two years assuming the sum of digits method?

A. $27,014.14 B. $27,681.14 C. $31,182.86 D. $32,386.73 73. A debt of $15,000 with interest at j2 = 9% is to be paid back over 15 years with semi-annual payments of $920.87. What is the outstanding balance after 18 payments using the sum of digits method?

(Answer to the nearest dollar) A) $8,397 B) $8,933 C) $9,166 D) $10,697 Answer: B

A loan of $15,000 at j2 = 9%, is to be paid back over 10 years with semi-annual payments of $1153.14 using the sum-of-digits method. The total interest paid over the life of the loan is $8062.83.

74. What is the outstanding balance of the loan after 6 years (12 payments)?

A. $6230.37 B. $7606.03 C. $7842.95 D. $9225.12 75. What is the interest portion of the 5th payment?

A. $614.31 B. $570.19 C. $582.95 D. $575.92

76. A woman borrows $30,000 from a loan company to be repaid by monthly payments of $746.55 over 4 years at j12 = 9%. What is the total amount interest paid in her second and third payments using the sum of digits method?

A. $471.32 B. $451.47 C. $461.39 D. $438.24 77. A couple wishes to save for a down payment of $50,000 on a house. They deposit money at the end of every 3 months for 4 years into a sinking fund to achieve their goal. If the sinking fund earns interest at j12 = 6%, what quarterly deposit does the couple need to make?

A. $2786.64 B. $2788.25 C. $3538.25 D. $3540.37 78. A sinking fund is established with monthly deposits of $50 earning an interest rate j12 = 12%. If the balance immediately after the nth deposit equals $1161.96, what was the balance immediately after the (n-1)th deposit?

A. $1150.46 B. $1123.08 C. $1111.96 D. $1100.95 79. A $100,000 debt is being repaid over 10 years using a sinking fund earning j1 = 6%. What is the book value of the debt after 4 years? (Answer to the nearest dollar)

A. $33,189 B. $47,080 C. $52,920 D. $66,811

80. A city borrows $1 million, paying semi-annual interest at j2 = 9%. The city creates a sinking fund in which semi-annual deposits of $35,360.93 are made in order to accumulate the $1 million needed to repay the loan upon maturity. The sinking fund earns j2 = 7%. What is the book value of the debt at the end of the 6 years? (Answer to the nearest dollar)

A. $231,621 B. $483,660 C. $516,340 D. $768,379 81. A city issues $100,000 worth of bonds paying interest at j2 = 7%. They make semi-annual deposits in a sinking fund to pay for the redemption of the bonds. The city decides to take some risk in their investing, so it turns out that the sinking fund earns j2 = 8%. The semi-annual cost of the debt is $6,858.18. What is the book value of the debt at the end of 2 years? (Answer to the nearest dollar)

A. $70,877 B. $71,093 C. $85,740 D. $85,845 82. A $10,000 bond paying semi-annual coupons at j2 = 8% is redeemable for $10,200 in 10 years. A sinking fund is set up at j2 = 4% to provide the necessary funds at maturity. What is the semi-annual expense of the bond?

A. $819.80 B. $811.57 C. $753.82 D. $742.53 83. A $200,000 debt at j2 = 7% is being repaid over 10 years using the sinking fund method, where the sinking fund earns interest at j2 = 6%. What is the book value of the loan at the end of 6 years?

A. $105,633.26 B. $100,655.79 C. $94,366.72 D. $91,315.56

84. A loan of $10,000 is taken out and is to be paid back over 10 years using the sinking fund method.

Annual interest payments on the loan are due at j1. Annual deposits into a sinking fund earning j1 = 5% are made to accumulate the $10,000. The annual expense (cost) of debt is $1445. What is j1?

A. 6.30% B. 6.40% C. 6.50% D. 6.75% 85. A company has borrowed $A and has agreed to pay interest on the loan every 3-months at j4 = 8% and pay back the $A in one lump sum at the end of 11 years. The company will make quarterly deposits in a sinking fund earning j4 = 4% to accumulate to $A by the end of 11 years. If the book value of the loan after 5 years is $81,485, what is the value of A? (Answer to the nearest $100)

A. $114,100 B. $119,300 C. $125,300 D. $136,000 86. A corporation takes out a loan of $A, to be paid back over 12 years using the sinking fund method. The interest rate on the loan is j4 = 8%, while the sinking fund earns j4 = 7%. The quarterly expense of debt is $6,509.08. What is the value of A? (Answer to the nearest dollar)

A. $194,500 B. $199,654 C. $210,209 D. $216,235 87. A $145,000 loan is repaid over 10 years using the sinking fund method. The sinking fund earns interest at j2 = 6%, while the interest rate on the loan is j2 = 8%. What is the semi-annual expense of debt?

A. $9,219.35 B. $11,196.28 C. $15,546.28 D. $18,448.43

88. A sinking fund is being accumulated at j12 = 6% by deposits of $200 per month to repay the loan of $10,000. If the book value of debt is 4605.31 just after the kth deposit, what is the book value of debt just after the (k+1)st deposit?

A. $4378.34 B. $4383.39 C. $4405.31 D. $4578.34 89. A city borrows $1,000,000 at j2 = 9.5%. They pay off this loan over eight years using the sinking fund method. The sinking fund interest rate is j2 = 8%. What is the book value of the debt after 5 years? (loan interest and sinking fund deposits are made semi-annually; (Answer to the nearest dollar)

A. $429,710 B. $449,880 C. $463,738 D. $482,113 90. A $50,000 bond pays semi-annual coupons at j2 = 8% is redeemable at 105 in 15 years. The bond carries a sinking fund provision requiring the issuer to make semi-annual deposits into a sinking fund. If the sinking fund earns j2 = 6%, what is the semi-annual expense of this debt (i.e. this bond issue)?

A. $2891.50 B. $2936.08 C. $3050.96 D. $3103.51 91. On a debt of $10,000, interest is paid semi-annually at j2 = 10% and semi-annual deposits are made into a sinking fund to retire the debt at the end of 5 years. The sinking fund earns interest at j12 = 6%. What is the semi-annual expense of the debt?

A. $2382.13 B. $1370.79 C. $2324.87 D. $870.79

92. A city borrows $1 million, paying semi-annual interest at j2 = 6%. The city creates a sinking fund in which semi-annual deposits of $35,360.93 are made in order to accumulate the $1 million needed to repay the loan upon maturity. The sinking fund ends earns j2 = 7%. You are given that the book value of the debt immediately after the 12th payment is $483,661.06. How much has been accumulated in the sinking fund immediately after the 13th deposit of $35,360.93?

A. $516,338.94 B. $534,410.81 C. $535,950.12 D. $569,771.73 93. A city issues $100,000 worth of bonds, redeemable at par and paying interest at j2 = 7%. A sinking fund, earning j2 = 11%, is created to pay for the redemption of the bonds. The semi-annual cost of the debt is $6367.93. What is the book value of the debt at the end of 6 years?

A. $53,007.27 B. $80,245.55 C. $46,992.73 D. $23,584.84 94. NewCo needs financing to start up its business. A bank is willing to loan NewCo $500,000. NewCo has two options. The first one is to amortize the debt in equal annual installments over 10 years at j1 = 9%.

The second option is to charge interest only at j1 = x% to be paid at the end of each year. The principal would be paid back at the end of the 10 years. If NewCo sets up a sinking fund at j1 = 8% to retire the debt in 10 years, and the two options have the same total annual expense (periodic cost), what is x?

Given,

A. 8.00% B. 8.32% C. 8.68% D. 9.00%

= 6.7101,

= 14.4866,

= 6.4177,

= 15.1929

95. A loan of $200,000 can be amortized over 10 years at j1 = 13% (option 1). Alternatively, the money can be borrowed at j1 = y%, with interest paid at the end of each year and the original loan repaid with one lump sum at the end of 10 years (option 2). For option 2, a sinking fund can be set up earning j1 = 9%.

What is the value of y such that the annual expense under the two options is the same?

A. Less than 10.5% B. 10.5% or more, but less than 11% C. 11% or more, but less than 11.5% D. 11.5% or more 96. A city has two sources to borrow $200,000. The first source is to borrow at j1 = 9% and amortize the debt for 10 years with annual payments of $31,164. For the second source, the money can be borrowed at j1 = 8% if the interest is paid annually and the principal is repaid in a lump sum at the end of 10 years.

Assume that a sinking fund can earn money at j1 = x%. At which of the following values of × will the second source be cheaper? (a) 7% (b) 6% (c) 5%

A. 7% only B. 6% and 7% C. 5%, 6% and 7% D. None of them 97. A $500,000 loan can be amortized over 15 years with annual payments of $58,414.77 at j1 = 8% (option A). Alternatively, $500,000 can be borrowed at j1 = x%, with interest paid at the end of each year and the principal repaid with one lump sum at the end of 15 years (option B). For option B, a sinking fund can be set up earning j1 = 6%. What is the value of x% such that the annual expense under the two options is the same?

A. 7.39% B. 7.26% C. 7.05% D. 6.92%

98. A small corporation is looking to borrow $750,000 is choosing between the following alternatives: Alternative A: pay the loan off over ten years with level annual payments of $97,100 Alternative B: pay off the loan at the end of 10-years using the sinking fund method where the sinking fund rate is j = 4% and annual interest payments are made assuming j = y.

Which of the following statements is/are true?

(I) If y = 0.03 for Alternative B then the corporation would chose Alternative A (II) If y = 0.05 for Alternative B then the corporation would choose Alternative B

A. Both B. I only C. II only D. Neither 99. A corporation takes out a loan for $88,000 with interest due every six months for 7-years at j2. The principal will be paid in one lump sum at the end of 7-years. The corporation makes semi-annual deposits of $5,150.32 into a sinking fund. The semi-annual cost of the loan is $9,110.32. What would be the semi-annual payment if the corporation was to instead pay off the loan using the amortization method, given the interest rate on the loan remained the same at j2?

A. $7,790.32 B. $8,608.19 C. $8,990.61 D. $9,231.00

c5 Key 1.

Bill takes out a loan at j4 = 6%, paid back with quarterly payments for 4.5 years. In the first payment, the principal repaid is $401.87. What is the amount of the loan? (Answer to the nearest dollar)

A. $6298 B. $7234 C. $8234 D. $8358

Pk = R (1 + i)-(n - k + 1)

401.87 = R (1.015)-(18 - 1 + 1)

I1 = R - P1 = 123.51

A=

=

R = 525.38

= $8234.07

Brown - Chapter 05 #1 Difficulty: Medium Section: 05-01

2.

A loan at j4 = 8.6% is being repaid over n-quarters, with quarterly payments of $647.18. The portion of the 9th payment that goes towards principal is $349.23. What is the value of n?

A. 29 B. 37 C. 38 D. 39

Pk = R (1 + i)-(n - k + 1) n = 37

P9 = 349.23 = 647.18 (1.0215)-(n - 9 + 1)

n - 9 + 1 = 29

Brown - Chapter 05 #2 Difficulty: Easy Section: 05-01

3.

A loan is taken out at j12 = 18% and is paid back with monthly payments of $279.00, plus a smaller concluding payment. With one month left on the loan, the outstanding balance is $268.66. What is the size of the final loan payment?

A. $279.00 B. $272.69 C. $268.66 D. $264.63 Final payment = OBn-1 (1 + i) = 268.66 (1.015) = $272.69

Accessibility: Keyboard Navigation Brown - Chapter 05 #3 Difficulty: Easy Section: 05-01

4.

A loan is being amortized with 25 quarterly payments. The principal portion of the 16th payment is $609.34. If j4 = 10%, what is original amount of the loan? (Answer to the nearest dollar) You are given:

,

A. $7752 B. $14,021 C. $14,371 D. $26,643

P1 = P16(1 + i)-15= 609.34(1.025)-15 = $420.73 A = P1

= 420.73

= $14,371

Brown - Chapter 05 #4 Difficulty: Medium Section: 05-01

5.

A company borrows $100,000 with interest at j12 = 9%. The loan is to be amortized by monthly payments of $1550 for as long as necessary. A final smaller payment will be calculated so the loan will be exactly repaid. What is the amount of interest paid in the 2nd monthly payment of $1550?

A. $806.00 B. $755.63 C. $745.42 D. $744.00

I1 = 100,000(0.0075) = 750; P1= 1550 - 750 = 800 OB1 = 100,000 - 800 = 99,200; I1 = 99,200(0.0075) = $744.00 Accessibility: Keyboard Navigation Brown - Chapter 05 #5 Difficulty: Easy Section: 05-01

6.

A company borrows $100,000 with interest at j12 = 9%. The loan is to be amortized by monthly payments of $1550 for as long as necessary. A final smaller payment will be calculated so the loan will be exactly repaid. The outstanding balance immediately after the 88th payment is $796.44. What is the value of the 89th and final payment?

A. $790.51 B. $796.44 C. $802.41 D. $808.43 Final payment = 796.44(1.0075) = $802.41

Accessibility: Keyboard Navigation Brown - Chapter 05 #6 Difficulty: Easy Section: 05-01

7.

A loan is being amortized over n-years with monthly payments of $295.32. The rate of interest on the loan is j12 = 12%. The principal repaid in the 25th payment is $206.41. What is the size of the loan? (Answer to the nearest dollar)

A. $13,276 B. $13,437 C. $16,095 D. $16,256

P1 = P25(1 + i)-24 = 206.41(1.01)-24 = 162.56 I1 = R - P1 = 295.32 - 162.56 = 132.76 A=

=

= $13,276

Brown - Chapter 05 #7 Difficulty: Medium Section: 05-01

8.

A loan is being amortized over n-years with monthly payments of $295.32. The rate of interest on the loan is j12 = 12%. The principal repaid in the 25th payment is $206.41. The outstanding balance after 25 payments (months) is $8684.79. What is the outstanding balance immediately after the 26th payment?

A. $8389.47 B. $8476.32 C. $8478.38 D. $8597.94

I26 = 8684.79(0.01) = 86.85; P26= 295.32 - 86.85 = 208.47 OB26 = 8684.79 - 208.47 = $8476.32

Accessibility: Keyboard Navigation Brown - Chapter 05 #8 Difficulty: Easy Section: 05-01

9.

A loan is being repaid by 20 equal semi-annual installments. The principal portion of the 8th payment is $245.29 and the interest portion is $254.71. What interest rate, j2 is being charged on the loan?

A. 12.23% B. 11.26% C. 10.96% D. 10.65%

R = Pk + Ik= 245.29 + 254.71 = 500 245.29 = P8 = 500(1 + i)-(20 - 8 + 1) which solves for i = 0.05631 j2= 2i = 11.26% Brown - Chapter 05 #9 Difficulty: Easy Section: 05-01

10.

A loan is being amortized with 20 annual payments of principal and interest. The principal repaid in the 13th payment is $801.45 and the interest portion of the 13th payment is $698.55. What is the effective annual rate of interest, j1 being charged on this loan?

A. 11.01% B. 10.02% C. 9.37% D. 8.15%

R = Pk + Ik= 801.45 + 698.55 = 1500 801.45 = P13 = R(1 + i)-(20 - 13 + 1) = 1500(1 + i)8 which solves for i = j1 = 8.15% Accessibility: Keyboard Navigation Brown - Chapter 05 #10 Difficulty: Easy Section: 05-01

11.

A loan of size A is to be amortized by monthly payments of $1000. The rate of interest on the loan is j12 = 18%. The outstanding balance immediately after the 4th monthly payment is $12,000. How much principal is repaid in the 12th monthly payment?

A. $923.72 B. $914.50 C. $910.07 D. $896.62

I5 = 12,000(0.015) = 180; P5 = 1000 - 180 = 820 P12 = P5(1 + i)7 = 820(1.015)7 = $910.07 Accessibility: Keyboard Navigation Brown - Chapter 05 #11 Difficulty: Medium Section: 05-01

12.

A loan of $A is repaid over 10 years with quarterly payments at j4 = 10%. The principal portion of the 12th payment is $300.52. What is A? (Answer to the nearest dollar)

A. $15,438 B. $15,061 C. $11,979 D. $9,898

P1 = P12 (1 + i)-11 = 300.52(1.025)-11 = $229.04 A = P1

= 229.04

= $15,437.88

Brown - Chapter 05 #12 Difficulty: Medium Section: 05-01

13.

The principal portion of the 20th payment of $R on an amortized loan is $340.95 and the principal portion of the 21st payment of $R is $348.11. If there are 55 payments in total, what is R?

A. $647.25 B. $659.69 C. $702.43 D. $720.47

= (1 + i) → = 1.021 i= 0.021 348.11 = P21 = R(1.021) -(55 - 21 + 1) which solves for R = $720.47

Brown - Chapter 05 #13 Difficulty: Medium Section: 05-01

14.

A loan is amortized at j2 = 12% with semi-annual payments of $R. The outstanding balance of the loan after 13 payments is $7049.29 and the outstanding balance after 14 payments is $6377.10.

What is R?

A. $1095.15 B. $1054.82 C. $805.58 D. 672.19

I14 = 7049.29(0.06) = 422.96 P14 = OB19 - OB14 = 7049.29 - 6377.10 = 672.19 R = I14 + P14 = $1095.15 Accessibility: Keyboard Navigation Brown - Chapter 05 #14 Difficulty: Medium Section: 05-01

15.

Exactly five years ago, a $100,000 condominium was purchased by making a $65,000 down payment and taking out a $35,000 mortgage. The mortgage interest rate was j2 = 8% and monthly mortgage payments of $267.10 have been made at the end of each month for the past five years. What is the purchaser's equity (buyer's equity) position today? (Answer to nearest dollar)

A. $32,249 B. $67,249 C. $67,751 D. $80,441 Buyer's Equity = Down payment + (A - OB) = 65,000 + (35,000 - [35,000(1.0065582)60 - 267.10

]) = $67,751

Brown - Chapter 05 #15 Difficulty: Easy Section: 05-01

16.

The interest portion of the 9th payment of $R on an amortized loan repaid monthly is $8.42. The interest portion of the 10th payment of $R is $7.77. If interest rate is j12 = 18%. What is R?

A. $12.03 B. $35.72 C. $51.75 D. $60.30 OB8 = 8.42/0.015 = 561.33; OB9 = 7.77/0.015 = 518; Thus P9 = 561.33 - 518 = 43.33; And R = P9 + I9 = $51.75

Accessibility: Keyboard Navigation Brown - Chapter 05 #16 Difficulty: Easy Section: 05-01

17.

A loan of $A is taken out at j12 = 6% and is repaid with monthly payments of $184.91. The principal portion of the 12th monthly payment is $115.00. What is A? (Answer to the nearest dollar)

A. $12,564 B. $12,684 C. $15,210 D. $15,318 P1 = P12 (1 + i)-11 = 115(1.005)-11 = 108.86; I1 = 184.91 - 108.86 = 76.05 Thus A = I1/i = 76.05/0.005 = $15,210

Accessibility: Keyboard Navigation Brown - Chapter 05 #17 Difficulty: Medium Section: 05-01

18.

A loan is being repaid with level annual payments of $1040 on July 30th of each year. The last $1040 loan payment is to be made on July 30, 2015 and the interest portion of this final payment is $40.

What is the principal portion of the payment made on July 30, 2010?

A. $821.93 B. $828.03 C. $854.80 D. $863.84

In = 40 and Pn = 1000 and OBn-1 = 1000; Thus i = In/OBn-1 = 0.04 Principal portion on July 30 (5 periods earlier) = 1000 (1.04)-5 = $821.93

Accessibility: Keyboard Navigation Brown - Chapter 05 #18 Difficulty: Medium Section: 05-01

19.

A $200,000 home is financed by paying by making a $60,000 down payment and taking out a $140,000 mortgage. The equivalent mortgage interest rate is j12 = 7.87% and monthly mortgage payments of $1068 are to be made. What is the buyer's equity when the mortgage renews 5 years from today? (Answer to the nearest dollar)

A. $129,028 B. $70,972 C. $61,792 D. $10,972 Seller's equity = OB60 = 140,000(1.00655833)60 - 1068 Buyer's equity = 200,000 - 129,027.86 = $70,972

= $129,027.86

Brown - Chapter 05 #19 Difficulty: Easy Section: 05-01

20.

A loan is being repaid over 8 years with 32 quarterly payments of $362.19 at j4 = 8%. Under the amortization method, how much of the 3rd payment goes towards interest on the loan?

A. $158.24 B. $162.24 C. $199.95 D. $203.95 P3 = 362.19 [1 - (1.02)-30] = $162.24

Accessibility: Keyboard Navigation Brown - Chapter 05 #20 Difficulty: Easy Section: 05-01

21.

The interest portion of the 10th payment of $R on an amortized loan repaid monthly is $7.82, while the principal portion of the 10th payment $43.93. If interest rate on the loan is j12 = 18%, what is the term of the loan (n) in months? (Answer to the nearest month)

A. 20 B. 21 C. 136 D. 137

I10 = 7.83, P10 = 43.93 → R = 51.75 → Pk = R(1 + i)-(n - k + 1) → 43.93 = 51.75(1.015)-(n - 10 + 1), which solves for n = 11 +10 - 1 = 20

Accessibility: Keyboard Navigation Brown - Chapter 05 #21 Difficulty: Easy Section: 05-01

22.

A debt is amortized at j4 = x%by payments of $300 per quarter. You are given that the outstanding balance is $6279.09 just after the kth payment and the outstanding balance is $6136.07 just after the (k + 1)st payment. What is x?

A. 14.30% B. 7.22% C. 28.88% D. 10.00%

Bk = 6279.09, Bk+1 = 6136.07 → Pk+1 = 143.02 Ik+1 = 300 - 143.02 = 156.98 = Bk i → i = 156.98/6136.07 = 0.025 Accessibility: Keyboard Navigation Brown - Chapter 05 #22 Difficulty: Hard Section: 05-01

23.

A loan is to be repaid with n equal monthly payments. If the sum-of-digits method is applied, the sum of the amount of interest paid in the first (I1) and last month (In) is equal to the half of the total amount interest paid. What is the value of n?

A. 4 B. 5 C. 6 D. Value of n cannot be determined.

I1 + In = 0.5 I → (n/sn) I + (1/sn) I = 0.5 I → (n + 1) = 0.5 sn = 0.5 (n)(n + 1)/2 → 1 = n/4 → n = 4 Accessibility: Keyboard Navigation Brown - Chapter 05 #23 Difficulty: Hard Section: 05-01

24.

The final payment of a loan with semi-annual payments consists of $5 in interest and $250 in repayment of principal. What is the nominal rate of interest compounded semi-annually, j2 that is being charged on this loan?

A. j2 < 1.9% B. 1.9% ≤ j2 < 2.9% C. (C).2.9% ≤ j2 < 3.9% D. j2 ≥ 3.9%

Bn-1 = Pn = 250; In = 5 = 250(i) → i = 5/250 = 0.02 → j2 = 2i = 0.04 = 4% Accessibility: Keyboard Navigation Brown - Chapter 05 #24 Difficulty: Medium Section: 05-01

A $10,000 loan is to be repaid with level payments of $600 at the end of every 3 months for as long as necessary. The loan interest rate is j4 = 6%.

Brown - Chapter 05

25.

What is the interest portion of the third (3rd) payment?

A. $129.44 B. $136.40 C. $156.85 D. $470.56 10 000(0.015) = 150 = I1 ; P1 = 600 - 150 = 450; B1 = 9550

Accessibility: Keyboard Navigation Brown - Chapter 05 #25 Difficulty: Medium Section: 05-01

26.

At the end of 2-years, the loan is refinanced at j4 = 4% and paid back over 3 more years. What is the new quarterly payment?

A. $581.47 B. $551.33 C. $568.89 D. $520.40

B8 = 10 000(1.015)8 - 600 R = 6205.22/

= 6205.22

= $551.33

Brown - Chapter 05 #26 Difficulty: Easy Section: 05-03

27.

A loan is being repaid with monthly payments of $250 at the end of each month. The loan interest rate is j12 = 7.5%. The outstanding loan balance immediately after the 22nd payment is $5404.80. What is the principal portion of the 30th payment?

A. $227.27 B. $35.29 C. $225.86 D. $214.71

I23 = B22 i = 5404.80(0.00625) = 33.78 P23 = 250 - 33.78 = 216.22 → P30 = 216.22(1.00625)7 = $225.86 Accessibility: Keyboard Navigation Brown - Chapter 05 #27 Difficulty: Medium Section: 05-01

28.

A loan of size A is to be amortized by monthly payments of $1000. The rate of interest on the loan is j12 = 18%. The outstanding balance immediately after the 4th monthly payment is $12,000. What is A? (Answer to the nearest dollar)

A. $15,075 B. $15,161 C. $16,000 D. $16,091 12,000 = A(1.015)4 - 1000

which solves for A = $15,160.60

Brown - Chapter 05 #28 Difficulty: Easy Section: 05-02

29.

Meg A. Bux takes out a loan for $10,000 at j4 = 10%, to be repaid with quarterly payments of $398.38. What is the outstanding balance of the loan just before the 27th payment is made? You are given:

= 36.0117 and

= 37.912.

A. $4374.62 B. $4656.59 C. $4773.00 D. $5131.66 OB26 = 10,000(1.025)26 - 398.38 = $4656.59 OB just before next payment = 4656.59(1.025) = $4,773

Brown - Chapter 05 #29 Difficulty: Medium Section: 05-02

30.

A company borrows $100,000 with interest at j12 = 9%. The loan is to be amortized by 88 monthly payments of $1550, plus a final smaller payment. What is the outstanding balance after 40 payments have been made?

A. $63,361.21 B. $62,842.79 C. $62,286.41 D. $28,007.93 OB40 = 100,000(1.0075)40 - 1550

= $62,842.79

Brown - Chapter 05 #30 Difficulty: Easy Section: 05-02

31.

Jim buys a car worth $20,000. He makes a down payment of $1000 and repays the balance with equal monthly payments of $450 at the end of each month for as long as is necessary. If interest on the loan is j12 = 6%, what is the outstanding balance after 24 payments have been made?

A. $9,971.66 B. $10,153.29 C. $11,098.82 D. $11,262.75 OB24 = 19,000(1.005)24 - 450

= $9971.66

Brown - Chapter 05 #31 Difficulty: Easy Section: 05-02

32.

A loan of A is to be amortized over 10 years with semi-annual payments. The interest rate on the loan is j2 = 10% and the semi-annual payment is R. After 3 years, the interest rate changes to j2 = 12%. Which of the following will give the correct outstanding balance after 3 years?

A. Option A B. Option B C. Option C D. Option D Outstanding balances are always calculated based on the current interest rates (i = 0.05) and NOT on the new interest rate (i = 0.06)

Brown - Chapter 05 #32 Difficulty: Easy Section: 05-02