1. A $50000 loan is to be amortized over 7 years with annual end-of-year payments. Which of these statements is CORRECT?a. The annual payments would be larger if the interest rate were lower.b. If the loan were amortized over 10 years rather than 7 years and if the interest rate were the same in either case the first payment would include more dollars of interest under the 7 year amortization plan.c. The proportion of each payment that represents interest as opposed to repayment of principal would be lower if the interest rate were lower.d. The last payment would have a higher proportion of interest than the first payment.e. The proportion of interest versus principal repayment would be the same for each of the 7 payments.2. A $150000 loan is to be amortized over 7 years with annual end-of-year payments. Which of these statements is CORRECT?a. The annual payments would be larger if the interest rate were lower.b. If the loan were amortized over 10 years rather than 7 years and if the interest rate were the same in either case the first payment would include more dollars of interest under the 7 year amortization plan.c. The proportion of each payment that represents interest as opposed to repayment of principal would be higher if the interest rate were lower.d. The proportion of each payment that represents interest versus repayment of principal would be higher if the interest rate were higher.e. The proportion of interest versus principal repayment would be the same for each of the 7 payments.3. You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would increases the calculated value of the investment?a. The cash flows are in the form of a deferred annuity and they total to $100000. You learn that the annuity lasts for only10 rather than 5 years hence that each payment is for $10000 rather than for $20000.b. The discount rate decreases.c. The riskiness of the investment s cash flows increases.d. The total amount of cash flows remains the same but more of the cash flows are received in the later years and less are received in the earlier years.e. The discount rate increases.4. Which of the following statement is CORRECT?a. A time line is not meaningful unless all cash flows occur annually.b. Time lines are useful for visualizing complex problems prior to doing actual calculations.c. Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly.d. Time lines cannot be constructed for annuities where the payments occur at either the beginning or the end of the periods.e. Some of the cash flows shown on a time line can be in the form of annuity payments but none can be uneven amounts.
