Exam 5: Interest Rates

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:

The total amount of principal that Dagny will pay during the first three months of her mortgage is closest to:

Which of the following formulas is INCORRECT?

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:

Which of the following statements is FALSE?

You are in the process of purchasing a new automobile that will cost you $25,000.The dealership is offering you either a $1000 rebate (applied toward the purchase price)or 3.9% financing for 60 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 7.5% for 60 months.Should you take the $2000 rebate and finance through your credit union or forgo the rebate and finance through the dealership at the lower 3.9% APR?

Which of the following equations is INCORRECT?

Which alternative offers you the lowest effective rate of return?

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%. -Dagny's monthly payments are closest to:

Which of the following statements is FALSE?

Wyatt Oil is considering drilling a new oil well that is initially expected to produce oil at a rate of 10 million barrels per year.Wyatt has a long-term contract that allows them to sell the oil at a profit of $2.50 per barrel.The cost of drilling the rig is $175,000,000.If the rate of oil production from the rig declines by 3% over the year and the discount rate is 9% per year (EAR),then using continuous compounding,the NPV of this new oil well is closest to:

Which of the following statements is FALSE?

Use the following information to answer the question(s)below: Suppose the term structure of risk-free interest rates is given as: Term 1 year 2 years 3 years 5 years 10 years Rate 2.25% 2.80% 3.20% 4.10% 6.30% -The present value of an investment that pays $2000 in one year and $3000 in three years for certain is closest to:

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?

The present value of receiving $1000 per year with certainty at the end of the next three years is closest to:

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

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

Which of the following statements is FALSE?

Which of the following statements is FALSE?

The effective annual rate (EAR)for a loan with a stated APR of 10% compounded quarterly is closest to: