Question 1

Given the above term structure of interest rates,which of the following is most likely in the future?

Accepted Answer

A) Option I only 
B) Option II only 
C) Option III only 
D) Options I and II 
E) Options II and III 
A) Option I only 
B) Option II only 
C) Option III only 
D) Options I and II 
E) Options II and III

Question 2

An 8% APR with monthly compounding is closest to which of the following?

Accepted Answer

A) an EAR of 6.7% 
B) an EAR of 7.72% 
C) an EAR of 8.3% 
D) an EAR of 8.5% 
E) an EAR of 9.14% 
A) an EAR of 6.7% 
B) an EAR of 7.72% 
C) an EAR of 8.3% 
D) an EAR of 8.5% 
E) an EAR of 9.14%

Question 3

The table above shows the rate of return (APR)for four investment alternatives.Which offers the highest EAR?

Accepted Answer

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

Question 4

A small foundry agrees to pay $250,000 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 $250,000.If the account pays 5.5% APR compounded monthly,how much must be deposited every three months?

Accepted Answer

A) $29,770 
B) $29,777 
C) $29,740 
D) $31,250 
E) $28,077 
A) $29,770 
B) $29,777 
C) $29,740 
D) $31,250 
E) $28,077

Question 5

Assume your current mortgage payment is $900 per month.If you begin to pay $1,000 per month (with the extra $100 per month going to principal),which of the following will be TRUE?

Accepted Answer

A) The mortgage balance will decrease faster with $1,000 monthly payments compared to $900 monthly payments. 
B) The total paid (principal and interest)will increase with $1,000 monthly payments compared to $900 monthly payments. 
C) The total interest expense will increase with $1,000 monthly payments compared to $900 monthly payments. 
D) The total principal paid will decrease with $1,000 monthly payments compared to $900 monthly payments. 
E) The time until your mortgage is paid off will increase with $1,000 monthly payments compared to $900 monthly payments. 
A) The mortgage balance will decrease faster with $1,000 monthly payments compared to $900 monthly payments. 
B) The total paid (principal and interest)will increase with $1,000 monthly payments compared to $900 monthly payments. 
C) The total interest expense will increase with $1,000 monthly payments compared to $900 monthly payments. 
D) The total principal paid will decrease with $1,000 monthly payments compared to $900 monthly payments. 
E) The time until your mortgage is paid off will increase with $1,000 monthly payments compared to $900 monthly payments.

Question 6

In an effort to maintain price stability,it is expected that the European Central Bank will raise interest rates in the future.Which of the following is the most likely effect of such an action on short- and long-term interest rates in Europe?

Accepted Answer

A) Long-term interest rates will tend to be higher than short-term interest rates. 
B) Long-term interest rates will be about the same as short-term interest rates. 
C) Both long- and short-term interest rates would be expected to fall sharply. 
D) No relative change in short- and long-term interest rates could be predicted. 
E) Long-term interest rates will tend to be lower than short-term interest rates. 
A) Long-term interest rates will tend to be higher than short-term interest rates. 
B) Long-term interest rates will be about the same as short-term interest rates. 
C) Both long- and short-term interest rates would be expected to fall sharply. 
D) No relative change in short- and long-term interest rates could be predicted. 
E) Long-term interest rates will tend to be lower than short-term interest rates.

Question 7

The opportunity cost of capital will generally be more than the interest rate offered by Government of Canada securities with the same term,for a risk-free investment.

Accepted Answer

A) True 
 B)False

Question 8

You are in the process of purchasing a new automobile that will cost you $25,000.The dealership is offering you either a $1000 rebate (applied toward the purchase price)or 3.9% financing for 60 months (with payments made at the end of the month).You have been pre-approved for an auto loan through your local credit union at an interest rate of 7.5% for 60 months.Should you take the $1000 rebate and finance through your credit union or forgo the rebate and finance through the dealership at the lower 3.9% APR?

Accepted Answer

First we need the monthly interest rate

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) $1454 
B) $527 
C) $467 
D) $478 
E) $497 
A) $1454 
B) $527 
C) $467 
D) $478 
E) $497

Question 10

When the costs of an investment come before that investment's benefits,what will be the the effect of a rise in interest rates on the attractiveness of that investment to potential investors?

Accepted Answer

A) It will make it more attractive,since it will increase the investment's net present value (NPV). 
B) It will make it more attractive,since it will decrease the investment's net present value (NPV). 
C) It will make it less attractive,since it will increase the investment's net present value (NPV). 
D) It will make it less attractive,since it will decrease the investment's net present value (NPV). 
E) It will be unchanged,since NPV calculations ignore changes in interest rates to more accurately compare the NPVs of projects beginning at different times. 
A) It will make it more attractive,since it will increase the investment's net present value (NPV). 
B) It will make it more attractive,since it will decrease the investment's net present value (NPV). 
C) It will make it less attractive,since it will increase the investment's net present value (NPV). 
D) It will make it less attractive,since it will decrease the investment's net present value (NPV). 
E) It will be unchanged,since NPV calculations ignore changes in interest rates to more accurately compare the NPVs of projects beginning at different times.

Question 11

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% 
E) 10.47% 
A) 10.52% 
B) 10.25% 
C) 10.38% 
D) 10.00% 
E) 10.47%

Question 12

Ursula wants to buy an $18,999 used car.She has savings of $2,000 plus an $800 trade-in.She wants her monthly payments to be about $272.Which of the following loans offers monthly payments closest to $272?

Accepted Answer

A) 6.5% APR for 36 months 
B) 6.5% APR for 48 months 
C) 6.5% APR for 60 months 
D) 6.5% APR for 72 months 
E) 6.5% APR for 84 months 
A) 6.5% APR for 36 months 
B) 6.5% APR for 48 months 
C) 6.5% APR for 60 months 
D) 6.5% APR for 72 months 
E) 6.5% APR for 84 months

Question 13

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

Accepted Answer

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

Question 14

Given a nominal interest rate of 3% and an inflation rate of 4.5%,what is the real interest rate?

Accepted Answer

A) 3% 
B) 0% 
C) -1.4% 
D) 1.5% 
E) 7.5% 
A) 3% 
B) 0% 
C) -1.4% 
D) 1.5% 
E) 7.5%

Question 15

Your bank account pays quarterly interest with an APR of 8.75%.What is the EAR?

Accepted Answer

A) 9.25% 
B) 8.5% 
C) 8.4% 
D) 8.75% 
E) 9.0% 
A) 9.25% 
B) 8.5% 
C) 8.4% 
D) 8.75% 
E) 9.0%

Question 16

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% 
E) 4.0% 
A) 10.0% 
B) 14.0% 
C) 6.0% 
D) 5.8% 
E) 4.0%

Question 17

In which of the following situations would it not be appropriate to use the following formula:   when determining the present value (PV)of a cash flow stream?

Accepted Answer

A) when yield curves are flat 
B) when short-term and long-term interest rates vary widely 
C) when the inflation rate is high 
D) when the discount rate is high 
E) when the real interest rate is high 
A) when yield curves are flat 
B) when short-term and long-term interest rates vary widely 
C) when the inflation rate is high 
D) when the discount rate is high 
E) when the real interest rate is high

Question 18

Your bank account pays monthly interest with an EAR of 10%.You are planning to buy a house in 10 years,and you wish to save $100,000 for the down payment.If you currently have no money in your account,how much will you need to save at the end of each month?

Accepted Answer

A) $833.33 
B) $500.35 
C) $488.17 
D) $9646.39 
E) $475.13 
A) $833.33 
B) $500.35 
C) $488.17 
D) $9646.39 
E) $475.13

Question 19

Your bank account pays monthly interest with an APR of 8%.You are planning to buy a house in 6 years,and you wish to save $40,000 for the down payment.If you currently have no money in your account,how much will you need to save at the end of each month?

Accepted Answer

A) $451.18 
B) $500.34 
C) $555.56 
D) $434.66 
E) $438.53 
A) $451.18 
B) $500.34 
C) $555.56 
D) $434.66 
E) $438.53

Question 20

You decide to take out a car loan for $20,000 at 7% APR for 60 months.How much are your monthly payments?

Accepted Answer

A) $396.02 
B) $333.33 
C) $406.48 
D) $400.00 
E) $367.54 
A) $396.02 
B) $333.33 
C) $406.48 
D) $400.00 
E) $367.54

Exam 5: Interest Rates

Given the above term structure of interest rates,which of the following is most likely in the future?

An 8% APR with monthly compounding is closest to which of the following?

The table above shows the rate of return (APR)for four investment alternatives.Which offers the highest EAR?

Assume your current mortgage payment is $900 per month.If you begin to pay $1,000 per month (with the extra $100 per month going to principal),which of the following will be TRUE?

In an effort to maintain price stability,it is expected that the European Central Bank will raise interest rates in the future.Which of the following is the most likely effect of such an action on short- and long-term interest rates in Europe?

The opportunity cost of capital will generally be more than the interest rate offered by Government of Canada securities with the same term,for a risk-free investment.

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:

When the costs of an investment come before that investment's benefits,what will be the the effect of a rise in interest rates on the attractiveness of that investment to potential investors?

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

Ursula wants to buy an $18,999 used car.She has savings of $2,000 plus an $800 trade-in.She wants her monthly payments to be about $272.Which of the following loans offers monthly payments closest to $272?

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

Given a nominal interest rate of 3% and an inflation rate of 4.5%,what is the real interest rate?

Your bank account pays quarterly interest with an APR of 8.75%.What is the EAR?

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:

In which of the following situations would it not be appropriate to use the following formula: when determining the present value (PV)of a cash flow stream?

Your bank account pays monthly interest with an EAR of 10%.You are planning to buy a house in 10 years,and you wish to save $100,000 for the down payment.If you currently have no money in your account,how much will you need to save at the end of each month?

Your bank account pays monthly interest with an APR of 8%.You are planning to buy a house in 6 years,and you wish to save $40,000 for the down payment.If you currently have no money in your account,how much will you need to save at the end of each month?

You decide to take out a car loan for $20,000 at 7% APR for 60 months.How much are your monthly payments?

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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