Exam 5: Interest Rates

Five years ago you took out a 30-year mortgage with a quoted APR of 6.5% for $200,000.If you were to refinance the mortgage today for 20 years at a quoted APR of 4.25%,how much would you save in total interest expense?

Your bank account pays quarterly interest with an APR of 7%.What is the EAR?

Given a real interest rate of 2.5% and an inflation rate of 4.5%,what is the nominal interest rate?

The table above shows the interest rates available from investing in risk-free Government of Canada securities with different investment terms.What is the present value (PV)of cash flows from an investment that yields $4000 at the end of each year for the next four years?

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

You decide to take out a car loan for $35,000 at 5% APR with monthly payments of $838.12.Over how many years is your loan being paid?

Consider an investment that pays $1000 certain at the end of each of the next four years.If the investment costs $3,500 and has a net present value (NPV)of $74.26,then the four year risk-free interest rate is closest to:

Liam had an extension built onto his home.He financed it for 48 months with a loan at 4.9% APR.His monthly payments were $750.How much was the loan amount for this extension?

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.

You decide to take out a car loan at 4.5% APR for 60 months.If your monthly payments are $512.68,what is the price of your car?

The yield curve is typically:

What care,if any,should be taken when cash flows occur in periodicities that are shorter than a year-e.g.,quarterly or monthly cash flows?

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.

Why,in general,do investment opportunities offer a rate greater than that offered by Government of Canada securities for the same horizon?

A Xerox DocuColor photocopier costing $42,000 is paid off in 60 monthly installments at 6.5% APR.After three years the company wishes to sell the photocopier.What is the minimum price for which they can sell the copier so that they can cover the cost of the balance remaining on the loan?

Is it possible to analyze cash flows that occur in time intervals that are not exactly equal to a year?

Historically,why have high inflation rates tended to be associated with high nominal interest rates?

The opportunity cost of capital is the best available expected return offered in the market on an investment of comparable risk and term to the cash flow being discounted.

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