Business Mathematics In Canada 9th Edition By Jerome – Test Bank

Chapter 11

Ordinary Annuities: Periodic Payment, Number of Payments, and Interest Rate

Multiple Choice Questions

1. A life insurance company will sell a 20-year annuity paying $1600 at the end of each month for $175,000. What quarterly compounded nominal rate of interest will the annuitant earn?
   A.9.401%
   B. 8.735%
   C. 9.226%
   D. 9.335%
   E. 9.297%

Difficulty: Medium
Learning Objective: 11-03 Calculate the interest rate in ordinary simple annuities and ordinary general annuities.
Topic: 11-03 Calculating the Interest Rate

2. A $10,000 debt is repaid by payments of $800 at the end of each quarter for five years. What semiannually compounded nominal interest rate was charged on the loan?
   A.23.10%
   B. 20.35%
   C. 11.08%
   D. 9.81%
   E. 19.86%

Difficulty: Hard
Learning Objective: 11-03 Calculate the interest rate in ordinary simple annuities and ordinary general annuities.
Topic: 11-03 Calculating the Interest Rate

3. Fred must pay a $25,000 obligation one year from now. What end-of-month payments for twelve months would put the creditor in an equivalent financial position if the creditor can earn 9% compounded monthly?
   A.$2186.29
   B. $1863.67
   C. $1998.79
   D. $2170.01
   E. $1983.91

Difficulty: Medium
Learning Objective: 11-01 Calculate the periodic payment in ordinary simple annuities and ordinary general annuities.
Topic: 11-01 Calculating the Periodic Payment

4. A $12,000 loan is repaid by semiannual payments of $1500 each. Interest on the loan is 10% compounded semiannually. How long will it take to pay off the loan?
   A.5.2 years
   B. 5 years
   C. 21 years
   D. 10 years
   E. 10.4 years

Difficulty: Medium
Learning Objective: 11-02 Calculate the number of payments in ordinary simple annuities and ordinary general annuities.
Topic: 11-02 Calculating the Number of Payments

5. A stereo priced at $1057.53 was paid for by 12 monthly payments of $100 with the first payment made one month after the date of purchase. What monthly compounded nominal interest rate was charged?
   A.2.00%
   B. 2.33%
   C. 27.97%
   D. 24.00%
   E. 24.96%

Difficulty: Medium
Learning Objective: 11-03 Calculate the interest rate in ordinary simple annuities and ordinary general annuities.
Topic: 11-03 Calculating the Interest Rate

6. A $50,000 mortgage loan requires monthly payments of $520 for 20 years. What is the semiannually compounded nominal rate of interest on the loan?
   A.11.3752%
   B. 11.6987%
   C. 11.1146%
   D. 0.9381%
   E. 11.2573%

Difficulty: Medium
Learning Objective: 11-03 Calculate the interest rate in ordinary simple annuities and ordinary general annuities.
Topic: 11-03 Calculating the Interest Rate

7. What quarterly compounded rate of return will allow investments of $800 at the end of every six months to accumulate to $24,000 after 10 years?
   A.14.876%
   B. 8.062%
   C. 8.143%
   D. 8.309%
   E. 15.286%

Difficulty: Medium
Learning Objective: 11-03 Calculate the interest rate in ordinary simple annuities and ordinary general annuities.
Topic: 11-03 Calculating the Interest Rate

8. An investment of $25,000 is made for a 10-year term. After the term expires, equal withdrawals will be made at the end of every month for 15 years. What will the size of the monthly withdrawal be if the investment earns 9% compounded monthly for both the deposit and withdrawal periods.
   A.$253.57
   B. $161.95
   C. $621.58
   D. $251.68
   E. $616.96

Difficulty: Medium
Learning Objective: 11-01 Calculate the periodic payment in ordinary simple annuities and ordinary general annuities.
Topic: 11-01 Calculating the Periodic Payment

9. What regular investment, made at the end of every three months and earning 10% compounded quarterly, would accumulate to $475,000 in 20 years?
   A.$3,492.86
   B. $17,616.21
   C. $7,856.83
   D. $1,912.37
   E. $7,916.67

Difficulty: Easy
Learning Objective: 11-01 Calculate the periodic payment in ordinary simple annuities and ordinary general annuities.
Topic: 11-01 Calculating the Periodic Payment

10. Marvin hopes to accumulate $1,000,000 in his retirement plan by making equal contributions at the end of each month for 35 years. He is planning to earn 10.8% compounded monthly. What amount should he deposit every month?
    A.$119.90
    B. $213.87
    C. $569.05
    D. $963.27
    E. $2,380.95