Exam 5: Interest Rates

A small foundry agrees to pay $220,000 two years from now to a supplier for a given amount of coking coal. The foundry plans to deposit a fixed amount in a bank account every three months, starting three months from now, so that at the end of two years the account holds $220,000. If the account pays 12.5% APR compounded monthly, how much must be deposited every three months?

What is the present value (PV)of an investment that pays $100,000 every year for four years if the interest rate is 5% APR, compounded quarterly?

Suppose the term structure of interest rates is shown below: Consider an investment that pays $1900 certain at the end of each of the next four years. If the investment costs $6650 and has a net present value (NPV)of $142.31, then the four year risk-free interest rate is closest to ________.

A truck costing $111,000 is paid off in monthly installments over four years with 8.10% APR. After three years the owner wishes to sell the truck. What is the closest amount from the following list that he needs to pay on his loan before he can sell the truck?

The term "opportunity" in opportunity cost of capital comes from the fact that any worthwhile opportunity for investment will have a cost: the risk to the capital invested.

In 2007, interest rates were about 4.5% and inflation was about 2.8%. What was the real interest rate in 2007?

A homeowner has a $227,000 home with a 20-year mortgage, paid monthly at 6.60% APR. After five years he receives $50,000 as an inheritance. If he pays this $50,000 toward his mortgage along with his regular payment, by approximately how many years will it reduce the amount of time it takes him to pay off his mortgage?

Which of the following situations would result in lowering of interest rates by the banking authority of a country?

A small business repairs its store. The builders charge them $130,000 which will be paid back in monthly installments over three years at 6.80% APR. The builders will reduce this rate to 6.30% APR if they pay $2600 up front. By approximately how much will this reduce the monthly loan repayments?

The annual percentage rate indicates the amount of interest, including the effect of any compounding.