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
Copyright © 2000 Stefan Waner & Steven R. Costenoble