Exam 1 - Iowa State University



Exam 1

Practice 2

1. The Jackson family is interested in buying a home. The family is applying for a $125,000, 30-year mortgage. Under the terms of the mortgage, they will receive $125,000 today to help purchase their home. The loan will be fully amortized over the next 30 years. Current mortgage rates are 8%. Interest is compounded monthly and all payments are due at the end of the month. What will be the remaining balance on the mortgage after 5 years?

A. $123,955.71

B. $115,763.87

C. $124,233.64

D. $118,837.32-ANSWER

2. Today you turned 14 years. You will begin college in four years and will need $6,000 annually at the end of the following four years for tuition. You can save equal annual amounts beginning next year and in each year until college (including the year you enroll). If the relevant rate is 8%, how large must those annual deposits be?

A. $5,013.45

B. $4,327.66

C. $4,410.18-ANSWER

D. $5,115.32

3. Limited liability is an advantage of a

A. Sole proprietorship

B. Partnership

C. Corporation-ANSWER

4. There has been a decrease in accounts payable, this would be a

A. Source

B. Use-ANSWER

5. Suppose you want to borrow $20,000 for a new car. You can borrow at 8% per year, compounded monthly. If you take a 4 year loan, what is your monthly payment?

A. $488.26-ANSWER

B. $567.39

C. $628.67

D. $583.74

6. A money market transaction occurs in the financial market in which funds are

borrowed or loaned for:

A. Short periods (one year or less) - ANSWER

B. Long periods (greater than one year)

7. Common stocks and preferred stocks are examples of what market transaction?

A. capital market transactions - ANSWER

B. money market transactions

8. The weak-form of market efficiency states that:

A. All information contained in past stock price movements is fully reflected in current market prices - ANSWER

B. Current market prices reflect all publicly available information

C. Current market prices reflect all pertinent information, whether publicly available or privately held

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