Question 1

Which of the following statements is FALSE?

Accepted Answer

A) The actual cash flow that the investor will get to keep will be reduced by the amount of any tax payments. 
B) The equivalent after-tax interest rate is r(1 - τ). 
C) The right discount rate for a cash flow is the rate of return available in the market on other investments of comparable risk and term. 
D) To compensate for the risk that they will receive less than promised if the firm defaults,investors demand a lower interest rate than the rate on U.S.Treasuries. 
A) The actual cash flow that the investor will get to keep will be reduced by the amount of any tax payments. 
B) The equivalent after-tax interest rate is r(1 - τ). 
C) The right discount rate for a cash flow is the rate of return available in the market on other investments of comparable risk and term. 
D) To compensate for the risk that they will receive less than promised if the firm defaults,investors demand a lower interest rate than the rate on U.S.Treasuries.

Question 2

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?

Accepted Answer

$3129.09
First figure out the outstandin

Question 3

You are offered an investment that pays 8% APR compounded continuously.The effective annual rate for this investment is closest to:

Accepted Answer

A) 7.70% 
B) 8.00% 
C) 8.33% 
D) 8.50% 
A) 7.70% 
B) 8.00% 
C) 8.33% 
D) 8.50%

Question 4

Consider an investment that pays $1000 certain at the end of each of the next four years.If the investment costs $3500 and has an NPV of $74.26,then the four year risk-free interest rate is closest to:

Accepted Answer

A) 4.50% 
B) 4.58% 
C) 4.55% 
D) 4.53% 
A) 4.50% 
B) 4.58% 
C) 4.55% 
D) 4.53%

Question 5

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

Accepted Answer

A) $246 
B) $446 
C) $1800 
D) $2245 
A) $246 
B) $446 
C) $1800 
D) $2245

Question 6

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:

Accepted Answer

A) $14,808 
B) $20,300 
C) $22,212 
D) $32,000 
A) $14,808 
B) $20,300 
C) $22,212 
D) $32,000

Question 7

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:

Accepted Answer

A) $708 
B) $725 
C) $736 
D) $1086 
A) $708 
B) $725 
C) $736 
D) $1086

Question 8

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 don't pay the points and borrow from the mortgage lender at 6.25%,then your monthly mortgage payment (with payments made at the end of the month)will be closest to:

Accepted Answer

A) $694 
B) $708 
C) $1540 
D) $1600 
A) $694 
B) $708 
C) $1540 
D) $1600

Question 9

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 take the $2500 rebate and finance your new car through your credit union your monthly payments will be closest to:

Accepted Answer

A) $520 
B) $573 
C) $593 
D) $799 
A) $520 
B) $573 
C) $593 
D) $799

Question 10

Which of the following statements is FALSE?

Accepted Answer

A) The actual return kept by an investor will depend on how the interest is taxed. 
B) The equivalent after-tax interest rate is r(1 - τ). 
C) The highest interest rate,for a given horizon,is the rate paid on U.S.Treasury securities. 
D) It is important to use a discount rate that matches both the horizon and the risk of the cash flows. 
A) The actual return kept by an investor will depend on how the interest is taxed. 
B) The equivalent after-tax interest rate is r(1 - τ). 
C) The highest interest rate,for a given horizon,is the rate paid on U.S.Treasury securities. 
D) It is important to use a discount rate that matches both the horizon and the risk of the cash flows.

Question 11

Which of the following statements is FALSE?

Accepted Answer

A) The relationship between the investment term and the interest rate is called the term structure of interest rates. 
B) Real interest rates indicate the rate at which your money will grow if invested for a certain period. 
C) The yield curve is a potential leading indicator of future economic growth. 
D) The shape of the yield curve will be strongly influenced by interest rate expectations. 
A) The relationship between the investment term and the interest rate is called the term structure of interest rates. 
B) Real interest rates indicate the rate at which your money will grow if invested for a certain period. 
C) The yield curve is a potential leading indicator of future economic growth. 
D) The shape of the yield curve will be strongly influenced by interest rate expectations.

Question 12

Which of the following statements is FALSE?

Accepted Answer

A) When we refer to the "risk-free interest rate," we mean the rate on U.S.Treasuries. 
B) Interest rates vary with the investment horizon. 
C) All borrowers,besides the U.S.Treasury,have some risk of default. 
D) When interest on a loan is tax deductible,the effective after-tax interest rate is τ × (1 - r). 
A) When we refer to the "risk-free interest rate," we mean the rate on U.S.Treasuries. 
B) Interest rates vary with the investment horizon. 
C) All borrowers,besides the U.S.Treasury,have some risk of default. 
D) When interest on a loan is tax deductible,the effective after-tax interest rate is τ × (1 - r).

Question 13

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:

Accepted Answer

A) $708 
B) $1530 
C) $1540 
D) $1600 
A) $708 
B) $1530 
C) $1540 
D) $1600

Question 14

You are considering purchasing a new automobile that will cost you $28,000.The dealer offers you 4.9% APR financing for 60 months (with payments made at the end of the month).Assuming you finance the entire $28,000 and finance through the dealer,your monthly payments will be closest to:

Accepted Answer

A) $1454 
B) $527 
C) $467 
D) $457 
A) $1454 
B) $527 
C) $467 
D) $457

Question 15

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?

Accepted Answer

A) Inverted;Higher 
B) Normal;Higher 
C) Inverted;Lower 
D) Normal;Lower 
A) Inverted;Higher 
B) Normal;Higher 
C) Inverted;Lower 
D) Normal;Lower

Question 16

If the current inflation rate is 5%,then the nominal rate necessary for you to earn an 8% real interest rate on your investment is closest to:

Accepted Answer

A) 13.0% 
B) 13.4% 
C) 4.9% 
D) 3.0% 
A) 13.0% 
B) 13.4% 
C) 4.9% 
D) 3.0%

Question 17

The effective annual rate for a credit card that charges a 19.9% APR compounded daily is closest to:

Accepted Answer

A) 18.15% 
B) 19.9% 
C) 22.0% 
D) 24.2% 
A) 18.15% 
B) 19.9% 
C) 22.0% 
D) 24.2%

Question 18

The NPV of an investment that costs $2700 and pays $1000 certain at the end of one,three,and five years is closest to:

Accepted Answer

A) 21.47 
B) $1665.62 
C) -100.26 
D) -71.38 
A) 21.47 
B) $1665.62 
C) -100.26 
D) -71.38

Question 19

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?

Accepted Answer

NPV = -2500 + 1000/(

Question 20

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

Accepted Answer

A) 5.6% 
B) 7.2% 
C) 5.8% 
D) 7.0% 
A) 5.6% 
B) 7.2% 
C) 5.8% 
D) 7.0%

Exam 5: Interest Rates

Which of the following statements is FALSE?

You are offered an investment that pays 8% APR compounded continuously.The effective annual rate for this investment is closest to:

Consider an investment that pays $1000 certain at the end of each of the next four years.If the investment costs $3500 and has an NPV of $74.26,then the four year risk-free interest rate is closest to:

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

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:

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:

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Which of the following statements is FALSE?

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:

You are considering purchasing a new automobile that will cost you $28,000.The dealer offers you 4.9% APR financing for 60 months (with payments made at the end of the month).Assuming you finance the entire $28,000 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 shape of the yield curve and what expectations are investors likely to have about future interest rates?

If the current inflation rate is 5%,then the nominal rate necessary for you to earn an 8% real interest rate on your investment is closest to:

The effective annual rate for a credit card that charges a 19.9% APR compounded daily is closest to:

The NPV of an investment that costs $2700 and pays $1000 certain at the end of one,three,and five years is 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?

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

The Corporation

Introduction to Financial Statement Analysis

Financial Decision Making and the Law of One Price

The Time Value of Money

Valuing Bonds

Investment Decision Rules

Fundamentals of Capital Budgeting

Valuing Stocks

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behavior and Capital Market Efficiency

Capital Structure in a Perfect Market

Debt and Taxes

Financial Distress,managerial Incentives,and Information

Payout Policy

Capital Budgeting and Valuation With Leverage

Valuation and Financial Modeling: a Case Study

Financial Options

Option Valuation

Real Options

Raising Equity Capital

Debt Financing

Leasing

Working Capital Management

Short-Term Financial Planning

Mergers and Acquisitions

Corporate Governance

Risk Management

International Corporate Finance

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