Question 1

A 12% APR with bi-monthly compounding is equivalent to an EAR of:

Accepted Answer

A) 11.98% 
B) 12.50% 
C) 12.00% 
D) 12.62% 
E) 12.14% 
A) 11.98% 
B) 12.50% 
C) 12.00% 
D) 12.62% 
E) 12.14%

Question 2

Which of the following formulas gives you the growth in purchasing power?

Accepted Answer

A) growth of money + growth of prices 
B) (1 + real rate)/ (1 + nominal rate) 
C) (1 + inflation rate)/ (1 + nominal rate) 
D) growth of money / growth of prices 
E) growth of money × growth of prices 
A) growth of money + growth of prices 
B) (1 + real rate)/ (1 + nominal rate) 
C) (1 + inflation rate)/ (1 + nominal rate) 
D) growth of money / growth of prices 
E) growth of money × growth of prices

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

The highest effective rate of return you could earn on any of these investments is closest to:

Accepted Answer

A) 6.250% 
B) 6.267% 
C) 6.300% 
D) 6.310% 
E) 6.245% 
A) 6.250% 
B) 6.267% 
C) 6.300% 
D) 6.310% 
E) 6.245%

Question 5

What is the implied assumption about interest rates when the equation to calculate the present value (PV)of perpetuity is used?

Accepted Answer

The equation for computation o

Question 6

Given a real interest rate of 5.8% and an inflation rate of 3.4%,what is the nominal interest rate?

Accepted Answer

A) 9.8% 
B) 2.3% 
C) 3.4% 
D) 5.8% 
E) 9.4% 
A) 9.8% 
B) 2.3% 
C) 3.4% 
D) 5.8% 
E) 9.4%

Question 7

Can the nominal interest rate ever be negative? Can the real interest rate ever be negative? Explain.

Accepted Answer

The nominal interest rate can never be n

Question 8

A $60,000 loan is taken out on a boat with the terms 7% APR for 36 months.How much are the monthly payments on this loan?

Accepted Answer

A) $1666.66 
B) $1783.33 
C) $1796.54 
D) $1852.62 
E) $1901.24 
A) $1666.66 
B) $1783.33 
C) $1796.54 
D) $1852.62 
E) $1901.24

Question 9

Joseph buys a Hummer for $60,000,financing it with a five-year 6.5% APR loan paid monthly.He decides to pay an extra $50 per month in addition to his monthly payments.Approximately how long will he take to pay off the loan under these conditions?

Accepted Answer

A) 4 years 10 months 
B) 4 years 9 months 
C) 4 years 6 months 
D) 4 years 4 months 
E) 5 years 
A) 4 years 10 months 
B) 4 years 9 months 
C) 4 years 6 months 
D) 4 years 4 months 
E) 5 years

Question 10

What is the effective annual rate (EAR)?

Accepted Answer

A) the interest rate that would earn the same interest with annual compounding 
B) the ratio of the number of the annual percentage rate to the number of compounding periods per year 
C) the discount rate for an n-year time interval,where n may be more than one year or less than or equal to one year (a fraction) 
D) the cash flows from an investment over a one-year period divided by the number of times that interest is compounded during the year 
E) the amount of simple interest earned in one year without considering the effects of compounding. 
A) the interest rate that would earn the same interest with annual compounding 
B) the ratio of the number of the annual percentage rate to the number of compounding periods per year 
C) the discount rate for an n-year time interval,where n may be more than one year or less than or equal to one year (a fraction) 
D) the cash flows from an investment over a one-year period divided by the number of times that interest is compounded during the year 
E) the amount of simple interest earned in one year without considering the effects of compounding.

Question 11

Which of the following statements is TRUE?

Accepted Answer

A) The interest rates that banks offer on investments or charge on loans is independent of the time horizon of the investment or loan. 
B) The Bank of Canada determines very short-term interest rates through its influence on the federal funds rate. 
C) The interest rates that are quoted by banks and other financial institutions are real interest rates. 
D) Fundamentally,interest rates are determined by the Bank of Canada. 
E) If interest rates are expected to fall in the future,long-term rates will tend to be higher than short-term rates. 
A) The interest rates that banks offer on investments or charge on loans is independent of the time horizon of the investment or loan. 
B) The Bank of Canada determines very short-term interest rates through its influence on the federal funds rate. 
C) The interest rates that are quoted by banks and other financial institutions are real interest rates. 
D) Fundamentally,interest rates are determined by the Bank of Canada. 
E) If interest rates are expected to fall in the future,long-term rates will tend to be higher than short-term rates.

Question 12

You decide to take out a car loan for $25,000 at 6% APR for 60 months.What is the outstanding principal of your loan after you make your first payment?

Accepted Answer

A) $24,875.00 
B) $24,516.68 
C) $24,641.68 
D) $24.734.32 
E) $24,975.14 
A) $24,875.00 
B) $24,516.68 
C) $24,641.68 
D) $24.734.32 
E) $24,975.14

Question 13

The effective annual rate (EAR)for a loan with a stated APR of 8% compounded monthly is closest to:

Accepted Answer

A) 8.30% 
B) 8.33% 
C) 8.00% 
D) 8.24% 
E) 8.16% 
A) 8.30% 
B) 8.33% 
C) 8.00% 
D) 8.24% 
E) 8.16%

Question 14

Which of the following best describes the annual percentage rate?

Accepted Answer

A) the quoted interest rate which considered with the compounding period gives the effective interest rate 
B) the effective annual rate after compounding is taken into account 
C) the discount rate when compounded more than once a year or less than once a year 
D) the discount rate when it is divided by the number of of times it is compounded in a year 
E) the total amount of interest that will be earned in one year 
A) the quoted interest rate which considered with the compounding period gives the effective interest rate 
B) the effective annual rate after compounding is taken into account 
C) the discount rate when compounded more than once a year or less than once a year 
D) the discount rate when it is divided by the number of of times it is compounded in a year 
E) the total amount of interest that will be earned in one year

Question 15

Michael has credit card debt of $60,000 that has an 18% APR,compounded monthly.The minimum monthly payment only requires him to pay the interest on his debt.He receives an offer for a credit card with an APR of 10% compounded monthly.If he rolls over his debt onto this card and makes the same monthly payment as before,how long will it take him to pay off his credit card debt?

Accepted Answer

A) 72 months 
B) 78 months 
C) 84 months 
D) 98 months 
E) 104 months 
A) 72 months 
B) 78 months 
C) 84 months 
D) 98 months 
E) 104 months

Question 16

Which of the following reasons for considering long-term loans inherently more risky than short-term loans is most accurate?

Accepted Answer

A) There is a greater chance that a borrower will default in a longer time-frame. 
B) The penalties for closing out a long-term loan early make them unattractive to many investors. 
C) Long-term loans typically have ongoing costs that accumulate over the life of the loan. 
D) The loan values are very sensitive to changes in market interest rates. 
E) There is a greater chance that an investor will need cash before the loan term is complete. 
A) There is a greater chance that a borrower will default in a longer time-frame. 
B) The penalties for closing out a long-term loan early make them unattractive to many investors. 
C) Long-term loans typically have ongoing costs that accumulate over the life of the loan. 
D) The loan values are very sensitive to changes in market interest rates. 
E) There is a greater chance that an investor will need cash before the loan term is complete.

Question 17

Inflation measures:

Accepted Answer

A) how price changes impact interest rates. 
B) how the purchasing power increases due to increasing interest rates. 
C) changes in nominal interest rates. 
D) changes in real interest rates. 
E) how purchasing power declines due to increasing prices. 
A) how price changes impact interest rates. 
B) how the purchasing power increases due to increasing interest rates. 
C) changes in nominal interest rates. 
D) changes in real interest rates. 
E) how purchasing power declines due to increasing prices.

Question 18

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

Accepted Answer

A) True 
 B)False

Exam 5: Interest Rates

A 12% APR with bi-monthly compounding is equivalent to an EAR of:

Which of the following formulas gives you the growth in purchasing power?

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

The highest effective rate of return you could earn on any of these investments is closest to:

What is the implied assumption about interest rates when the equation to calculate the present value (PV)of perpetuity is used?

Given a real interest rate of 5.8% and an inflation rate of 3.4%,what is the nominal interest rate?

Can the nominal interest rate ever be negative? Can the real interest rate ever be negative? Explain.

A $60,000 loan is taken out on a boat with the terms 7% APR for 36 months.How much are the monthly payments on this loan?

Joseph buys a Hummer for $60,000,financing it with a five-year 6.5% APR loan paid monthly.He decides to pay an extra $50 per month in addition to his monthly payments.Approximately how long will he take to pay off the loan under these conditions?

What is the effective annual rate (EAR)?

Which of the following statements is TRUE?

You decide to take out a car loan for $25,000 at 6% APR for 60 months.What is the outstanding principal of your loan after you make your first payment?

The effective annual rate (EAR)for a loan with a stated APR of 8% compounded monthly is closest to:

Which of the following best describes the annual percentage rate?

Which of the following reasons for considering long-term loans inherently more risky than short-term loans is most accurate?

Inflation measures:

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

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

Filters