1. A gallon of milk costs $3.59 today. How much will it cost you to buy a gallon of milk for your grandchildren in 35 years if inflation averages 5% per year and milk prices increase along with the overall rate of inflation?
a. $3.77
b. $6.28
c. $12.34
d. $19.80
2. You borrow $95,000 and agree to pay the interest and principal in monthly installments over the next 12 years. The annual interest rate of 12%. What are the monthly payments required to amortize this loan?
a. $1,248
b. $1,336
c. $1,400
d. $3,936
3. Compound interest can best be described as:
a. interest earned on the original principal
b. the discount rate
c. interest earned on interest only
d. interest earned on interest and interest earned on the original principal