Exam 5: Interest Rates

A Xerox DocuColor photocopier costing $42,000 is paid off in 60 monthly installments at 6.5% APR.After three years the company wishes to sell the photocopier.What is the minimum price for which they can sell the copier so that they can cover the cost of the balance remaining on the loan?

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 the outstanding principal balance on your SUV loan is closest to:

When you borrow money,the interest rate on the borrowed money is the price you pay to be able to convert your future loan payments into money today.

The table above shows the interest rates available from investing in risk-free Government of Canada securities with different investment terms.What is the present value (PV)of cash flows from an investment that yields $4000 at the end of each year for the next four years?

How are interest and return of principal handled in an amortizing loan payment?

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

The real interest rate is the rate of growth of one's purchasing power due to money invested.

A house costs $138,000.It is to be paid off in exactly ten years,with monthly payments of $1675.What is the quoted APR of this mortgage?

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 two 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%,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. 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 (PV)of the lease payments for the delivery truck 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?

How do we decide on opportunity cost when we have several opportunities that need to be forgone?

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:

Which of the following is/are TRUE? I.The EAR can never exceed the APR. II)The APR can never exceed the EAR. III)The APR and EAR can never be equal.

You decide to take out a car loan at 4.5% APR for 60 months.If your monthly payments are $512.68,what is the price of your car?

Use the table for the question(s) below. Consider the following investment alternatives: -Which alternative offers you the highest effective rate of return?

When there are large numbers of people looking to save their money and there is little demand for loans,one would expect interest rates to be high.

A homeowner has five years of monthly payments of $1400 before she has paid off her house.If the quoted interest rate is 7% APR,what is the remaining balance on her mortgage?

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 monthly discount rate that you should use to evaluate the truck lease is closest to:

Your bank account pays quarterly interest with an APR of 8.75%.What is the EAR?