FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 5: Interest Rates

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 21

Multiple Choice

Review LaterAdd Note

Review Later

Which of the following statements is FALSE?

A) Because interest rates may be quoted for different time intervals,it is often necessary to adjust the interest rate to a time period that matches that of our cash flows.
B) The effective annual rate indicates the amount of interest that will be earned at the end of one year.
C) The annual percentage rate indicates the amount of simple interest earned in one year.
D) The annual percentage rate indicates the amount of interest including the effect of compounding.

Correct Answer

verified

Show Answer

Question 22

Essay

Review LaterAdd Note

Review Later

You are purchasing a new home and need to borrow $325,000 from a mortgage lender.The mortgage lender quotes you a rate of 6.5% APR for a 30-year fixed rate mortgage (with payments made at the end of each month).The mortgage lender also tells you that if you are willing to pay 1 point,they can offer you a lower rate of 6.25% APR for a 30-year fixed rate mortgage.One point is equal to 1% of the loan value.So if you take the lower rate and pay the points,you will need to borrow an additional $3250 to cover points you are paying the lender.Assuming that you do not intend to prepay your mortgage (pay off your mortgage early),are you better off paying the 1 point and borrowing at 6.25% APR or just taking out the loan at 6.5% without any points?

Correct Answer

verified

Pay the point!
Points (6.25% APR)
First,...

View Answer

Show Answer

Question 23

Multiple Choice

Review LaterAdd Note

A tax-free municipal bond pays an effective annual rate of 7.2%.If your tax rate is 30%,then the effective annual rate that a comparable corporate bond would have to offer you to earn an equivalent after-tax return would be closest to:

If the current inflation rate is 4.2% and you are earning a real rate of return on an investment of 3.8%,then the nominal rate on this investment is closest to:

Use the information for the question(s) below. You are purchasing a new home and need to borrow $250,000 from a mortgage lender.The mortgage lender quotes you a rate of 6.25% APR for a 30-year fixed rate mortgage.The mortgage lender also tells you that if you are willing to pay 2 points,they can offer you a lower rate of 6.0% APR for a 30-year fixed rate mortgage.One point is equal to 1% of the loan value.So if you take the lower rate and pay the points you will need to borrow an additional $5000 to cover points you are paying the lender. -Assuming you pay the points and borrow from the mortgage lender at 6.00%,then your monthly mortgage payment (with payments made at the end of the month) will be closest to:

Use the information for the question(s)below. Two years ago,you purchased a new SUV.You financed your SUV for 60 months (with payments made at the end of the month)with a loan at 5.9% APR.You monthly payments are $617.16 and you have just made your 24th monthly payment on your SUV. -Assuming that you have made all of the first 24 payments on time,then how much interest have you paid over the first two years of your loan?

Use the information for the question(s) below. Your firm needs to invest in a new delivery truck.The life expectancy of the delivery truck is five years.You can purchase a new delivery truck for an upfront cost of $200,000,or you can lease a truck from the manufacturer for five years for a monthly lease payment of $4000 (paid at the end of each month) .Your firm can borrow at 6% APR with quarterly compounding. -The present value of the lease payments for the delivery truck is closest to:

You are considering purchasing a new truck that will cost you $34,000.The dealer offers you 1.9% APR financing for 48 months (with payments made at the end of the month) .Assuming you finance the entire $34,000 and finance through the dealer,your monthly payments will be closest to:

Use the table for the question(s)below. Suppose the term structure of interest rates is shown below: -What is the NPV of an investment that costs $2500 and pays $1000 certain at the end of one,three,and five years?

Which of the following statements is FALSE?

Use the table for the question(s) below. Suppose you have the following Loans/Investments -If your income tax rate is 30%,then the after-tax return you receive on your money market fund is closest to:

Assume that you presently have a monthly home mortgage with a stated interest rate of 7% APR.Also assume that you are able to deduct your interest on your tax return.If your income tax rate is 20%,then the after-tax EAR for your home mortgage is closest to:

Wesley Mouch's auto loan requires monthly payments and has an effective annual rate of 6.43%.The APR on this auto loan is closest to:

Use the information for the question(s) below. You are in the process of purchasing a new automobile that will cost you $27,500.The dealership is offering you either a $2500 rebate (applied toward the purchase price) or 1.9% financing for 48 months (with payments made at the end of the month) .You have been pre-approved for an auto loan through your local credit union at an interest rate of 6.5% for 48 months. -If you forgo the $2500 rebate and finance your new car through the dealership your monthly payments (with payments made at the end of the month) will be closest to:

Which of the following statements is FALSE?

Use the table for the question(s) below. Consider the following investment alternatives: -The lowest effective rate of return you could earn on any of these investments is closest to:

Floyd Ferris invested $3000 into an account five years ago.Today his account has grown to have a balance of $3927.50.Given that his account offered monthly compounding of interest,the APR on this account is closest to:

Use the following information to answer the question(s) below. Dagny Taggart has just purchased a home and taken out a $400,000 mortgage.The mortgage has a 30-year term with monthly payments and has an APR of 5.4%. -The total amount of interest that Dagny will pay during the first three months of her mortgage is closest to:

Use the table for the question(s) below. Suppose the term structure of interest rates is shown below: -What is the shape of the yield curve and what expectations are investors likely to have about future interest rates?

Use the table for the question(s) below. Suppose the term structure of interest rates is shown below: -The present value of receiving $1000 per year with certainty at the end of the next three years is closest to: