Question

1. (TRUE or FALSE?) The APR is the true cost of borrowing and lending, it is...

1. (TRUE or FALSE?) The APR is the true cost of borrowing and lending, it is the rate that should be used for making all finance decisions.

2. (TRUE or FALSE?) If you pay the same insurance premium amount every month for a term life policy for a period of five years, then the stream of cash flows is called an annuity.

3. (TRUE or FALSE?) The British Treasury Department bonds, called consols, were the first widely used securities as an annuity.

4. (TRUE or FALSE?) The quoted interest rate is an interest rate that has been annualized by dividing the rate per period by the number of compounding periods, and the EAR is an example for the consumer borrowing and lending rates which are annualized in this manner.

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Answer #1

1. FALSE

APR is not the true cost of borrowing and lending. We should use effective rate when making all finance decisions.

2. TRUE

A series of equal and regular payments for a specific period of time is called an annuity

3. FALSE

The British consols are called perpetual bonds, not annuity as there is no maturity on the consols.

4. FALSE

The quoted interest rate is an interest rate that has been annualized by multiplying the EAR by the number of compounding periods. The quoted rates are annualized in this manner.

The EAR is an example for the consumer borrowing and lending rates which are divided by the number of compounding periods.

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