Exam 5: Interest Rates

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?

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.

Joe borrows $100,000 and agrees to repay the principal, plus 7% APR interest compounded monthly, at the end of three years. Joe has taken out an amortizing loan.

An animator needs a laptop for audio/video editing, and notices that he can pay $2600 for a Dell XPS laptop, or lease from the manufacturer for monthly payments of $75 each for four years. The designer can borrow at an interest rate of 14% APR compounded monthly. What is the cost of leasing the laptop over buying it outright?

Use the table for the question(s)below. Suppose the term structure of interest rates is shown below: -What is the net present value (NPV)of an investment that costs $2,500 and pays $1,000 at the end of one, three, and five years?

Quality adjustments to changes in the CPI most often result in reductions to the inflation rate calculated from it.

How do we handle a situation when both compounding period and cash flow interval are given to us but both are less than a year and not equal to each other?

You are considering purchasing a new automobile with the upfront cost of $25,000 or leasing it from the dealer for a period of 60 months. The dealer offers you 4.00% APR financing for 60 months (with payments made at the end of the month). Assuming you finance the entire $25,000 through the dealer, your monthly payments will be closest to ________.

Which of the following computes the growth in purchasing power?

Market forces determine interest rates based ultimately on the willingness of individuals, banks, and firms to borrow, save, and lend.

A bank offers a loan that will requires you to pay 7% interest compounded monthly. Which of the following is closest to the EAR charged by the bank?

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.

What is the effective annual rate (EAR)?

Consider the following investment alternatives: The highest effective rate of return you could earn on any of these investments is closest to ________.

Howard is saving for a holiday. He deposits a fixed amount every month in a bank account with an EAR of 14.7%. If this account pays interest every month then how much should he save from each monthly paycheck in order to have $14,000 in the account in four years' time?

Drew receives an inheritance that pays him $54,000 every three months for the next two years. Which of the following is closest to the present value (PV)of this inheritance if the interest rate is 8.9% (EAR)?

A bank offers an account with an APR of 5.8% and an EAR of 5.88%. How does the bank compound interest for this account?

A house costs $148,000. It is to be paid off in exactly ten years, with monthly payments of $1737.54. What is the APR of this loan?

A(n)12% APR with monthly compounding is closest to ________.

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 $300,000, or you can lease a truck from the manufacturer for five years for a monthly lease payment of $6000 (paid at the end of each month). Your firm can borrow at 8.00% APR with quarterly compounding. The monthly discount rate that you should use to evaluate the truck lease is closest to ________.