Tco Essay Question

Question Type: # Of Questions: # Correct:
Multiple Choice 5 4
Many Multiple Choice 1 1
Matching 1 1
Essay 1 N/A
Grade Details - All Questions 1. Question :
(TCO 3) You have been approved for a $70,000 loan toward the purchase of a new home at 12% interest. The mortgage is for 30 years. How much are the approximately annual payments of the loan? Hint: Assume you pay yearly.

Student Answer: $2613 CORRECT $8690 $5740 None of the above Instructor Explanation: (Chapter 5, pages 132-133)
Answer: $70,000 = C x (1-1/1.12^30)/.12 = C x (1-0.0334)/.12 = C x 8.0552

C = $70,000 / 8.0552 = $8,690

Points Received: 3 of 3 Comments:

2. Question :
(TCO 3) First Choice Bank pays 9% APR compounded quarterly on its business loans. National Emerald Bank pays 19% APR
compounded semiannually. The EAR for First Choice and National Emerald Bank are:

Student Answer: CORRECT 9.31% and 19.90%, respectively 9% and 19.50%, respectively 9.31% and 19.50%, respectively 9% and 19.90%, respectively Instructor Explanation: (Chapter 5, page 140)
Answer: EAR = [1 + (APR / m)]m – 1

EAR = [1 + (.09 / 4)]4 – 1= .0931 or 9.31%

EAR = [1 + (.19 / 2)]2 – 1 = .1990 or 19.90% Points Received: 3 of 3 Comments:

3. Question :
(TCO 3) LED Computer Electronics is considering an investment that will have cash flows of $5,000, $6,000, $7,000 and $10,000 for years 1 through 4. What is the approximate value of this investment today if the appropriate discount rate is 9% per year?

Student Answer: $22,250 $30,520 CORRECT $22,120 None of the above Instructor Explanation: Chapter 5, page 124-126
Answer: $5,000 / 1.09 + $6,000 / 1.09^2 + $7,000 / 1.09^3 + $10,000 / 1.09^4 = $22,127

Points Received: 3 of 3 Comments:

4. Question :
(TCO 3) Which of the following will increase the total amount of interest earned on an investment assuming that all interest is reinvested? Select all answers that apply:

Student Answer: CORRECT increasing the frequency of the interest payments CORRECT decreasing the frequency of the interest payments CORRECT increasing the interest rate CORRECT decreasing the interest rate Points Received: 4 of 4 Comments:

5. Question :
(TCO 3) If you borrow $50,000 today at 10% interest for eight years. How much of your first payment will be applied towards the principal of the loan?

Student Answer: $5,000 CORRECT $4,372 $4,790 zero, all will be applied towards the interest Instructor Explanation: (Chapter 5, page 130-134)
Answer: First you need to calculate your payment:

$50,000 = C x (1-1/1.10^8)/.10 = C x (1-0.4665)/.10 = C x 5.335

$50,000 / 5.335 = $9,372

Year Payment Principal Paid Interest Paid Remaining Balance
1

9,372

4,372

50,000 x 10% = 5,000.00

45,628

2

9,372

4,809.2

45,628 x 10% = 4,562.8

40,818.8

Points Received: 3 of 3 Comments:

6. Question :
(TCO 3) Match the following terms with the examples as appropriate:

Student Answer: CORRECT : Pure discount loan » 3 : You borrow $3,000 from your bank at 10% interest. You will make no payments for two months but will return the full amount plus interest at the end of three months. CORRECT : Amortized Loan » 4 : You obtained a loan from your bank to buy a car. You will pay $300 per month to cover both interest and principal. CORRECT : Interest-only Loan » 2 : You obtained a 5-month commercial loan. This loan loan will allow you to paid $500 in interest for four months and a final payment of interest and principal at the end of the fifth month. CORRECT : Treasury Bill » 1 : a promise by the US government to repay a fixed amount at some time in the future. Instructor Explanation: (Chapter 5, pages 144-147) Points Received: 4 of 4 Comments:

7. Question :
(TCO 3) You are interested in saving to buy a new machine that costs $387,120. You can deposit $32,805 in your bank today. If your bank pays 14% annual interest on its accounts, how long will it take you to save for the new machine?

Student Answer: CORRECT about 19 years about 5 years INCORRECT about 12 years Can not be determined Instructor Explanation: (Chapter 4, page 110-111)
Answer: FV = PV(1 + r)t

Solving for t, we get:

t = ln(FV / PV) / ln(1 + r)

FV = $387,120 = $32,805(1.14)t

t = ln($387,120 / $32,805) / ln 1.14

t = 18.84 years

Points Received: 0 of 4 Comments:

8.
Question :
(TCO 3) Why does money have time value?

Student Answer: Money has value because people believe that they will be able to exchange their money for goods and services at a future date or time. This concept is based upon a dollar in the hand is worth more than a dollar in the future. But when investing it is the amount an investment is worth after one or more periods is the future value of the money. So money means different things depending on the concept that it is being thought of at the time. Instructor Explanation: (Lecture). Possible answers include:
- inflation & postponement of consumption
- earning interest over time Points Received: 6 of 6 Comments:

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