Fall 2024 - AFA Final Exam Review

Front

What is the formula to calculate the future value of an investment compounded annually?

Back

The future value (FV) can be calculated using the formula: $$FV = P(1 + r)^n$$ where P is the principal amount, r is the annual interest rate, and n is the number of years.

Front

What is capitalization of interest in the context of loans?

Back

Capitalization of interest occurs when unpaid interest is added to the principal balance of a loan, increasing the total amount owed.

Front

What is the difference between subsidized and unsubsidized federal student loans?

Back

Subsidized loans do not accrue interest while the borrower is in school, while unsubsidized loans accrue interest from the time they are disbursed.

Front

How do you calculate the total interest paid on a loan?

Back

Total interest can be calculated using the formula: $$I = P imes r imes t$$ where I is the interest, P is the principal, r is the annual interest rate, and t is the time in years.

Front

What is the significance of the APR in loans?

Back

APR (Annual Percentage Rate) represents the yearly cost of borrowing, including interest and fees, expressed as a percentage.

Front

When do federal student loan payments typically begin?

Back

Federal student loan payments are expected to start 6 months after the borrower is no longer attending school.

Front

What is the formula for calculating monthly payments on an amortized loan?

Back

The formula for monthly payments (M) is: $$M = P \frac{r(1 + r)^n}{(1 + r)^n - 1}$$ where P is the loan amount, r is the monthly interest rate, and n is the number of payments.

Front

What is the formula for calculating the balance of an account with compound interest?

Back

The balance can be calculated using the formula: $$A = P(1 + r/n)^{nt}$$ where A is the amount of money accumulated after n years, including interest, P is the principal, r is the annual interest rate, n is the number of times that interest is compounded per year, and t is the number of years.

Front

What is the tax rate for married couples filing jointly with an income of $33,294?

Back

The tax for married couples filing jointly with an income of $33,294 is $4,064.

Front

What does it mean to 'amortize' a loan?

Back

To amortize a loan means to gradually pay off the debt over time through regular payments that cover both principal and interest.