IC28 Mock Test Sample 11

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Q1. In Exercise 3.2 Q.12, the first 7 payments of Rs. 500 form:

a) An immediate annuity for 7 years
b) An annuity due
c) A perpetuity
d) A geometric annuity

Q2. In Exercise 3.2 Q.13, the issue price of the loan involves:

a) PV of redemption value + PV of deferred coupons
b) Just PV of Rs. 12500
c) Coupons only
d) Issue price = Rs. 10000

Q3. In Exercise 3.2 Q.14, the 4-yearly effective rate equals:

a) $(1.04)^8 - 1$
b) 0.08
c) 0.32
d) $(1.08)^4 - 1$

Q4. In Exercise 3.2 Q.15, the sinking fund equation is:

a) $X \cdot s_{\overline{20}|}$ at 9% = Rs. 20000
b) $X \cdot a_{\overline{20}|}$ = Rs. 20000
c) $X \cdot 20$ = Rs. 20000
d) $X \cdot v^{20}$ = Rs. 20000

Q5. In Exercise 3.2 Q.16, changing interest rates require:

a) Splitting accumulation into two segments
b) One single rate
c) Computing PV only
d) Using only 10%

Q6. For an immediate annuity payable $r$ times a year, the denominator uses:

a) Nominal rate $i^{(r)}$
b) Effective rate $i$
c) Discount rate $d$
d) $1/r$-th rate only

Q7. The symbol for an increasing $r$-thly annuity is:

a) $(I^{(r)}a)_{\overline{n}|}$
b) $(Ia)_{\overline{n}|}$
c) $a_{\overline{n}|}^{(r)}$
d) $\ddot{a}_{\overline{n}|}$

Q8. The relation $\ddot{a}_{\overline{n}|}^{(r)} = (1+i^{(r)}/r)a_{\overline{n}|}^{(r)}$ relates:

a) Annuity due to immediate annuity
b) PV to FV
c) Increasing to decreasing annuity
d) Effective to nominal rate

Q9. For practical computation of $a_{\overline{n}|}^{(1/r)}$, the expression involves:

a) $r \cdot a_{\overline{n}|}/s_{\overline{r}|}$
b) $a_{\overline{n}|}/r$
c) $s_{\overline{n}|}/r$
d) $1/r$

Q10. A GP perpetuity has finite present value when:

a) $g < i$
b) $g > i$
c) $g = i$
d) $g = 0$

Q11. The increasing annuity $(Ia)_{\overline{n}|}$ is commonly derived by:

a) Multiplying by $(1+i)$ and subtracting
b) Using tables only
c) Differentiation
d) Geometric construction only

Q12. From first principles, $(Ia)_{\overline{n}|}$ is written as:

a) $1v + 2v^2 + 3v^3 + \dots + nv^n$
b) $\sum v^k$
c) $\sum (1+i)^k$
d) $(1-v^n)/i$

Q13. For a generally varying annuity, the simplest method is:

a) Discount each payment individually and sum
b) Use level annuity formula
c) Use perpetuity formula
d) Approximate as constant

Q14. The title of Chapter 4 is:

a) Annuities
b) Redemption of Loan
c) Capital Redemption Policies
d) Sinking Fund

Q15. Which is NOT a common loan repayment method described?

a) Entire loan with interest repaid at end
b) Interest paid annually with principal at end
c) Loan repaid by uniform instalments
d) Loan repaid by lump sum at beginning

Q16. If a loan amount is $L$ at interest rate $i$, the amount payable after $n$ years is:

a) $L(1+i)^n$
b) $L(1+ni)$
c) $L/(1+i)^n$
d) $Lv^n$

Q17. Loans repaid by level payments including principal and interest resemble:

a) Endowment mortgage
b) Repayment mortgage
c) Interest-only mortgage
d) Reverse mortgage

Q18. Loans repaid by interest only during the term with capital at end resemble:

a) Repayment mortgage
b) Endowment mortgage
c) Bullet loan
d) Adjustable rate mortgage

Q19. For a level annuity loan, the interest in the first year equals:

a) $1-v^n$
b) $v^n$
c) $a_{\overline{n}|}$
d) 1

Q20. The principal repaid in the first instalment of a unit loan equals:

a) $1-v^n$
b) $v^n$
c) $v^{n-1}$
d) $v$

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