Question 1

Which of the following accounts has the highest EAR?

Accepted Answer

A) one that pays 6.1% every six months 
B) one that pays 1.0% per month 
C) one that pays 12.6% per year 
D) one that pays 3% every three months 
E) one that pays 0.2% per week 
A) one that pays 6.1% every six months 
B) one that pays 1.0% per month 
C) one that pays 12.6% per year 
D) one that pays 3% every three months 
E) one that pays 0.2% per week B

Question 2

A home buyer buys a house for $225,000.She pays 20% cash,and takes a fixed-rate mortgage for ten years at a quoted APR of 6.26%.If she makes biweekly payments,which of the following is closest to each of her payments?

Accepted Answer

A) $915.08 
B) $928.61 
C) $937.50 
D) $1165.07 
E) $1160.76 
A) $915.08 
B) $928.61 
C) $937.50 
D) $1165.07 
E) $1160.76 B

Question 3

A homeowner has a $200,000 home with a 20-year mortgage,paid monthly at a quoted APR of 7.25%.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?

Accepted Answer

A) 6 years 
B) 5 years 
C) 4 years 
D) 3 years 
E) 2 years 
A) 6 years 
B) 5 years 
C) 4 years 
D) 3 years 
E) 2 years A

Question 4

What is the implied assumption about interest rates when using the built-in functions of a financial calculator to calculate the present value (PV)of an annuity?

Accepted Answer

The built-in functions for pre

Question 5

The net present value (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 
E) $0 
A) $21.47 
B) $1665.62 
C) -$100.26 
D) -$71.38 
E) $0

Question 6

What is a mortgage?

Accepted Answer

A mortgage is a loan

Question 7

Elinore is asked to invest $5000 in a friend's business with the promise that the friend will repay $5500 in one year's time.Elinore finds her best alternative to this investment,with similar risk,is one that will pay her $5400 in one year's time.U.S.securities of similar term offer a rate of return of 6%.What is the opportunity cost of capital in this case?

Accepted Answer

A) 6% 
B) 8% 
C) 9% 
D) 10% 
E) 7% 
A) 6% 
B) 8% 
C) 9% 
D) 10% 
E) 7%

Question 8

Your bank account pays daily interest with an APR of 4.5%.What is the EAR?

Accepted Answer

A) 4.0% 
B) 4.8% 
C) 4.5% 
D) 4.6% 
E) 4.4% 
A) 4.0% 
B) 4.8% 
C) 4.5% 
D) 4.6% 
E) 4.4%

Question 9

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

Accepted Answer

A) $2737 
B) $2723 
C) $2733 
D) $2744 
E) $3000 
A) $2737 
B) $2723 
C) $2733 
D) $2744 
E) $3000

Question 10

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 one 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 one point and borrowing at 6.25% APR or just taking out the loan at 6.5% without any points?

Accepted Answer

Pay the points! Points (6.25% APR) First

Question 11

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) $31,250 
B) $20,300 
C) $19,200 
D) $32,000 
E) $29,000 
A) $31,250 
B) $20,300 
C) $19,200 
D) $32,000 
E) $29,000

Question 12

You decide to take out a car loan for $34,575 at 4% APR for 72 months.How much are your monthly payments?

Accepted Answer

A) $480.21 
B) $540.93 
C) $1,470.30 
D) $549.63 
E) $499.42 
A) $480.21 
B) $540.93 
C) $1,470.30 
D) $549.63 
E) $499.42

Question 13

Assuming you do not pay the points and borrow from the mortgage lender at 6.25%,your monthly mortgage payment (with payments made at the end of the month)will be closest to:

Accepted Answer

A) $1570 
B) $1530 
C) $1540 
D) $1500 
E) $1510 
A) $1570 
B) $1530 
C) $1540 
D) $1500 
E) $1510

Question 14

The table above shows the interest rates available from investing in risk-free Government of Canada securities with different investment terms.If an investment offers a risk-free cash flow of $100,000 in ten years' time,what is the present value (PV)of that cash flow?

Accepted Answer

A) $80,051 
B) $78,320 
C) $73,512 
D) $70,892 
E) $95,102 
A) $80,051 
B) $78,320 
C) $73,512 
D) $70,892 
E) $95,102

Question 15

How do we decide on opportunity cost when we have several opportunities that need to be forgone?

Accepted Answer

We rank all the forgone opportunities,an

Question 16

Everything else remaining the same,under what situation will APR and EAR be equal?

Accepted Answer

An APR will equal EA

Question 17

You decide to take out a 25-year mortgage for $375,000 at 5% APR.What will your outstanding balance be at the end of the mortgage's initial 5-year term?

Accepted Answer

A) $330,000 
B) $332,176 
C) $331,584 
D) $331,903 
E) $244,139 
A) $330,000 
B) $332,176 
C) $331,584 
D) $331,903 
E) $244,139

Question 18

The present value (PV)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 
E) $205,475 
A) $206,900 
B) $207,050 
C) $207,680 
D) $198,420 
E) $205,475

Question 19

Use the table for the question(s)below.
Suppose the term structure of interest rates is shown below:
  
-After examining the yield curve,what predictions do you have about interest rates in the future? About future economic growth and the overall state of the economy?

Accepted Answer

This is an inverted yield curve,which im

Question 20

Which of the following would be most likely to lower the interest rate that a bank offers a borrower?

Accepted Answer

A) The number of borrowers seeking funds is high. 
B) The expected inflation rate is expected to be high. 
C) The borrower is judged to have a low degree of risk. 
D) The investment will be for a long period of time. 
E) The number of savers depositing funds at the bank is low. 
A) The number of borrowers seeking funds is high. 
B) The expected inflation rate is expected to be high. 
C) The borrower is judged to have a low degree of risk. 
D) The investment will be for a long period of time. 
E) The number of savers depositing funds at the bank is low.

Exam 5: Interest Rates

Which of the following accounts has the highest EAR?

A home buyer buys a house for $225,000.She pays 20% cash,and takes a fixed-rate mortgage for ten years at a quoted APR of 6.26%.If she makes biweekly payments,which of the following is closest to each of her payments?

What is the implied assumption about interest rates when using the built-in functions of a financial calculator to calculate the present value (PV)of an annuity?

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

What is a mortgage?

Your bank account pays daily interest with an APR of 4.5%.What is the EAR?

The present value (PV)of receiving $1000 per year with certainty at the end of the next three years 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 decide to take out a car loan for $34,575 at 4% APR for 72 months.How much are your monthly payments?

Assuming you do not pay the points and borrow from the mortgage lender at 6.25%,your monthly mortgage payment (with payments made at the end of the month)will be closest to:

The table above shows the interest rates available from investing in risk-free Government of Canada securities with different investment terms.If an investment offers a risk-free cash flow of $100,000 in ten years' time,what is the present value (PV)of that cash flow?

How do we decide on opportunity cost when we have several opportunities that need to be forgone?

Everything else remaining the same,under what situation will APR and EAR be equal?

You decide to take out a 25-year mortgage for $375,000 at 5% APR.What will your outstanding balance be at the end of the mortgage's initial 5-year term?

The present value (PV)of the lease payments for the delivery truck is closest to:

Use the table for the question(s)below. Suppose the term structure of interest rates is shown below: -After examining the yield curve,what predictions do you have about interest rates in the future? About future economic growth and the overall state of the economy?

Which of the following would be most likely to lower the interest rate that a bank offers a borrower?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

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