#1
What is the formula for simple interest?
(P x r x t) / 100
ExplanationSimple interest is calculated by multiplying the principal amount (P), the interest rate (r), and the time (t), then dividing by 100.
#2
Which of the following factors affect the interest rate on a loan?
All of the above
ExplanationVarious factors, such as credit score, inflation, and market conditions, collectively affect the interest rate on a loan.
#3
What is the formula for compound interest?
P x (1 + r / n)^(n x t)
ExplanationCompound interest is computed using the principal amount (P), interest rate (r), compounding frequency (n), and time (t).
#4
How does inflation typically affect interest rates?
Increases them
ExplanationInflation tends to lead to higher interest rates as lenders compensate for the eroding purchasing power of money.
#5
How does a longer loan term affect the total amount repaid?
Increases it
ExplanationExtending the loan term results in higher total repayment due to additional interest accumulated over an extended period.
#6
Which of the following is true about adjustable-rate loans?
Interest rates can change periodically.
ExplanationAdjustable-rate loans have variable interest rates that can change at specified intervals, impacting monthly payments.
#7
Which of the following is an advantage of a fixed-rate loan?
Predictable monthly payments
ExplanationA fixed-rate loan offers stability with constant monthly payments, facilitating budgeting and financial planning.
#8
What is the difference between APR and interest rate?
APR includes all fees, while interest rate does not.
ExplanationAnnual Percentage Rate (APR) considers all costs associated with a loan, including fees, providing a more comprehensive measure than the interest rate.
#9
What is the rule of 72 used for in finance?
Estimating the time it takes for money to double at a given interest rate
ExplanationThe rule of 72 is a quick method to estimate the number of years required for an investment to double in value, based on a fixed annual rate of return.
#10
What is the difference between nominal and real interest rates?
Real interest rates include inflation, while nominal interest rates do not.
ExplanationNominal interest rates exclude inflation, whereas real interest rates account for inflation's impact on the purchasing power of money.
#11
What is the effect of compounding frequency on compound interest?
Higher compounding frequency leads to higher compound interest.
ExplanationMore frequent compounding amplifies compound interest, as interest is applied more frequently to the growing principal.