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A $50,000 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. Which of the following statements is CORRECT?
a. If you have a series of cash flows, each of which is positive, you can
solve for I, where the solution value of I causes the PV of the cash flows
to equal the cash flow at Time 0.
b. If you have a series of cash flows, and CF0 is negative but each of the
following CFs is positive, you can solve for I, but only if the sum of the
undiscounted cash flows exceeds the cost.
c. To solve for I, one must identify the value of I that causes the PV of
the positive CFs to equal the absolute value of the PV of the negative