True/False Quizzes for Finite Mathematics Topic: Mathematics of Finance (Chapter 5)

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 1 In an account earning simple interest, the interest from the first year is reinvested at the beginning of the second year. 2 An investment that earns compound interest is the same as one that earns simple interest at the effective yield. 3 In simple interest, the future value of an investment is always a linear function of the the number of years the investment is held. 4 If an investment earns compound interest, then its future value is not a linear function of the the number of years the investment is held. 5 If an investment pays interest at an annual rate of 5% per year, compounded twice a year, then the effective yield is larger than 5%. 6 If an investment pays interest at an annual rate of 5% per year, compounded once a year, then the effective yield is larger than 5%. 7 If an investment pays interest at an annual rate of 5% per year, compounded once a year, then the effective yield is smaller than 5%. 8 If, due to inflation, prices are rising by 1% every month, they will rise exactly 12% during the year. 9 If, due to inflation, prices are rising by 1% every month, they will rise by about 12.7% during the year. 10 An investment earning 20% interest compounded twice a year is better than one earning 19.7% interest compounded daily. 11 An investment earning 20% interest compounded twice a year is better than one earning 19% interest compounded daily. 12 If you deposit \$200 each month into an interest-bearing account, and if your little brother withdraws \$125 from the same account, the account is an increasing annuity. 13 If you invest \$100 per month in an interest bearing account, then that account becomes a decreasing annuity the moment your investments stop. 14 On a mortgage or other long-term loan, the early payments go mostly to paying interest. 15 Shortening the period of a loan lowers the monthly payments. 16 Shortening the period of a loan lowers the total interest paid. 17 In a conventional mortgage, the lending institution is making regular payments into an increasing annuity. 18 In a conventional mortgage, the lending institution is making regular withdrawals from a decreasing annuity. 19 In a conventional mortgage, the borrower is making regular payments into an increasing annuity. 20 In a conventional mortgage, the borrower is making regular withdrawals from a decreasing annuity.

Last Updated: July, 2000