Question 1

The government of Canada pays lower rates of interest than Canadian corporations when each of them borrows from the public because

Accepted Answer

A)  the government of Canada only pays the overnight rate when it borrows. 
B)  the government of Canada only pays the nominal rate when it borrows. 
C)  the government of Canada only pays the real rate when it borrows. 
D)  the government of Canada only pays the risk-free rate when it borrows. 
A)  the government of Canada only pays the overnight rate when it borrows. 
B)  the government of Canada only pays the nominal rate when it borrows. 
C)  the government of Canada only pays the real rate when it borrows. 
D)  the government of Canada only pays the risk-free rate when it borrows.

Question 2

Which of the following statements is false?

Accepted Answer

A)  When we refer to the "risk-free interest rate," we mean the rate on Treasury Bills of the Government of Canada. 
B)  Interest rates vary with the investment horizon. 
C)  All borrowers, besides the Government of Canada, 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 Treasury Bills of the Government of Canada. 
B)  Interest rates vary with the investment horizon. 
C)  All borrowers, besides the Government of Canada, 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 3

Which of the following statements is false?

Accepted Answer

A)  The investor's opportunity cost of capital is the best available expected return offered in the market on an investment of comparable risk and term of the cash flows being discounted. 
B)  Interest rates we observe in the market will vary based on quoting conventions, the term of investment, and risk. 
C)  The opportunity cost of capital is the return the investor forgoes when the investor takes on a new investment. 
D)  For a risk-free project, the opportunity cost of capital will typically be greater than the interest rate of Canadian T-bill securities with a similar term. 
A)  The investor's opportunity cost of capital is the best available expected return offered in the market on an investment of comparable risk and term of the cash flows being discounted. 
B)  Interest rates we observe in the market will vary based on quoting conventions, the term of investment, and risk. 
C)  The opportunity cost of capital is the return the investor forgoes when the investor takes on a new investment. 
D)  For a risk-free project, the opportunity cost of capital will typically be greater than the interest rate of Canadian T-bill securities with a similar term.

Question 4

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. Your monthly payments are $617.16 and you have just made your 24th monthly payment on your SUV.
-The amount of your original loan is closest to:

Accepted Answer

A)  $37,000 
B)  $32,000 
C)  $20,300 
D)  $31,250 
A)  $37,000 
B)  $32,000 
C)  $20,300 
D)  $31,250

Question 5

Consider an investment that pays $1,000 with certainty at the end of each of the next four years.If the investment costs $3,500 and has an NPV of $74.26,then the four year risk-free interest rate is closest to:

Accepted Answer

A)  4.5% 
B)  4.58% 
C)  4.55% 
D)  4.53% 
A)  4.5% 
B)  4.58% 
C)  4.55% 
D)  4.53%

Question 6

If the current inflation rate is 4% and you have an investment opportunity that pays 10%,then the real rate of interest on your investment is closest to:

Accepted Answer

A)  10.0% 
B)  14.0% 
C)  6.0% 
D)  5.8% 
A)  10.0% 
B)  14.0% 
C)  6.0% 
D)  5.8%

Question 7

What is the effective after-tax rate of each instrument,expressed as an EAR?

Accepted Answer

Credit Card
Interest is not deductible s

Question 8

The term structure of interest rates predicts that long-term interest rates will exceed short-term interest rates,resulting in an upward sloping yield curve. If Central Banks were to intervene in the financial market to "flatten" the shape of the yield curve,they would attempt this by

Accepted Answer

A)  purchasing long-term bonds. 
B)  selling long-term bonds. 
C)  purchasing short-term bonds. 
D)  selling short-term bonds. 
A)  purchasing long-term bonds. 
B)  selling long-term bonds. 
C)  purchasing short-term bonds. 
D)  selling short-term bonds.

Question 9

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)  $1,454 
B)  $527 
C)  $467 
D)  $478 
A)  $1,454 
B)  $527 
C)  $467 
D)  $478

Question 10

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. Your 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,how much interest have you paid over the first two years of your loan?

Accepted Answer

$3,128.78
First,figure out the outstandi

Question 11

The difference between a nominal and a real interest rate is

Accepted Answer

A)  that a nominal interest rate includes the overnight rate. 
B)  that a nominal interest rate includes prime rate. 
C)  that a nominal interest rate includes rate of inflation. 
D)  none of the above. 
A)  that a nominal interest rate includes the overnight rate. 
B)  that a nominal interest rate includes prime rate. 
C)  that a nominal interest rate includes rate of inflation. 
D)  none of the above.

Question 12

Which of the following statements is false?

Accepted Answer

A)  The plot of the relationship between the investment risk and the interest rate is call the yield curve. 
B)  Each of the previous recessions in Canada was preceded by a period with an inverted yield curve. 
C)  The nominal interest rate does not represent the increase in purchasing power that will result from investing. 
D)  A risk-free cash flow received in two years should be discounted at the two-year interest rate. 
A)  The plot of the relationship between the investment risk and the interest rate is call the yield curve. 
B)  Each of the previous recessions in Canada was preceded by a period with an inverted yield curve. 
C)  The nominal interest rate does not represent the increase in purchasing power that will result from investing. 
D)  A risk-free cash flow received in two years should be discounted at the two-year interest rate.

Question 13

Most provinces in Canada have harmonized their cost of credit disclosure requirements so that when the compounding interval for the APR is not stated explicitly,it is equal ________.

Accepted Answer

A)  to the interval between the payments 
B)  to the number of payment intervals in a year 
C)  to the effective rate 
D)  to the nominal rate 
A)  to the interval between the payments 
B)  to the number of payment intervals in a year 
C)  to the effective rate 
D)  to the nominal rate

Question 14

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 $4,000 (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:

Accepted Answer

A)  $206,900 
B)  $207,050 
C)  $207,680 
D)  $198,420 
A)  $206,900 
B)  $207,050 
C)  $207,680 
D)  $198,420

Question 15

The effective annual rate (EAR)for a savings account with a stated APR of 4% compounded daily is closest to:

Accepted Answer

A)  4.00% 
B)  4.10% 
C)  4.08% 
D)  4.06% 
A)  4.00% 
B)  4.10% 
C)  4.08% 
D)  4.06%

Question 16

In Canada,the reason an APR cannot be used as a discount rate in a mortgage calculation is

Accepted Answer

A)  because it has a different compounding frequency in a year than the payment frequency in a year. 
B)  because it has the same compounding frequency in a year as the payment frequency in a year. 
C)  because it has twice the compounding frequency in a year that the payment frequency in a year has. 
D)  none of the above 
A)  because it has a different compounding frequency in a year than the payment frequency in a year. 
B)  because it has the same compounding frequency in a year as the payment frequency in a year. 
C)  because it has twice the compounding frequency in a year that the payment frequency in a year has. 
D)  none of the above

Question 17

The NPV of an investment that costs $2,700 and pays $1,000 with certainty at the end of one,three,and five years is closest to:

Accepted Answer

A)  21.47 
B)  $1,665.62 
C)  -100.26 
D)  -71.38 
A)  21.47 
B)  $1,665.62 
C)  -100.26 
D)  -71.38

Question 18

The Bank of Canada determines very short-term interest rates through its influence on

Accepted Answer

A)  the overnight rate. 
B)  the nominal interest rate. 
C)  the real interest rate. 
D)  the effective annual rate. 
A)  the overnight rate. 
B)  the nominal interest rate. 
C)  the real interest rate. 
D)  the effective annual rate.

Question 19

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

Accepted Answer

A)  Investment A 
B)  Investment B 
C)  Investment C 
D)  Investment D 
A)  Investment A 
B)  Investment B 
C)  Investment C 
D)  Investment D

Question 20

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

Accepted Answer

A)  10.52% 
B)  10.25% 
C)  10.38% 
D)  10.00% 
A)  10.52% 
B)  10.25% 
C)  10.38% 
D)  10.00%

Exam 5: Interest Rates

The government of Canada pays lower rates of interest than Canadian corporations when each of them borrows from the public because

Which of the following statements is false?

Which of the following statements is false?

Consider an investment that pays $1,000 with certainty at the end of each of the next four years.If the investment costs $3,500 and has an NPV of $74.26,then the four year risk-free interest rate is closest to:

If the current inflation rate is 4% and you have an investment opportunity that pays 10%,then the real rate of interest on your investment is closest to:

What is the effective after-tax rate of each instrument,expressed as an EAR?

The term structure of interest rates predicts that long-term interest rates will exceed short-term interest rates,resulting in an upward sloping yield curve. If Central Banks were to intervene in the financial market to "flatten" the shape of the yield curve,they would attempt this by

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:

The difference between a nominal and a real interest rate is

Which of the following statements is false?

Most provinces in Canada have harmonized their cost of credit disclosure requirements so that when the compounding interval for the APR is not stated explicitly,it is equal ________.

The effective annual rate (EAR)for a savings account with a stated APR of 4% compounded daily is closest to:

In Canada,the reason an APR cannot be used as a discount rate in a mortgage calculation is

The NPV of an investment that costs $2,700 and pays $1,000 with certainty at the end of one,three,and five years is closest to:

The Bank of Canada determines very short-term interest rates through its influence on

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

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

The Corporation

Introduction to Financial Statement Analysis

Arbitrage and Financial Decision Making

The Time Value of Money

Valuing Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behaviour and Capital Market Efficiency

Financial Options

Option Valuation

Real Options

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 Modelling: a Case Study

The Mechanics of 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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