Exam 5: Interest Rates

You are purchasing a new home and need to borrow $380,000 from a mortgage lender. The mortgage lender quotes you a rate of 5.75% APR for a 30-year fixed rate mortgage. The mortgage lender also tells you that if you are willing to pay two points, they can offer you a lower rate of 5.45% 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 $7600 to cover points you are paying the lender. Assuming you do not pay the points and borrow from the mortgage lender at 5.75%, then your monthly mortgage payment (with payments made at the end of the month) will be closest to ________.

A construction company takes a loan of $1,531,000 to cover the cost of a new grader. If the interest rate is 6.75% APR, and payments are made monthly for five years, what percentage of the outstanding principal does the company pay in interest each month?

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?

Use the table for the question(s) below. Suppose the term structure of interest rates is shown below: -Suppose the term structure of interest rates is shown below: The present value (PV) of receiving $1100 per year with certainty at the end of the next three years is closest to ________.

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

A(n) 12% APR with monthly compounding is closest to ________.

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?

The effective annual rate (EAR) for a savings account with a stated APR of 5% compounded daily is closest to ________.

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

Two years ago you purchased a new SUV. You financed your SUV for 60 months (with payments made at the end of the month) with a loan at 5.95% APR. Your monthly payments are $386.19 and you have just made your 24th monthly payment on your SUV. The amount of your original loan is closest to ________.

Which of the following statements is FALSE?

Which of the following computes the growth in purchasing power?

Liam had an extension built onto his home. He financed it for 48 months with a loan at 5.00% APR. His monthly payments were $770. How much was the loan amount for this extension?

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?

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?

How are interest and return of principal handled in an amortizing loan payment?

Use the table for the question(s) below. Suppose the term structure of interest rates is shown below: -Suppose the term structure of interest rates is shown below: The net present value (NPV) of an investment that costs $4320 and pays $1600 certain at the end of one, three, and five years is closest to ________.

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

You are considering purchasing a new automobile with the upfront cost of $26,000 or leasing it from the dealer for a period of 48 months. The dealer offers you 2.80% APR financing for 48 months (with payments made at the end of the month). Assuming you finance the entire $26,000 through the dealer, your monthly payments will be closest to ________.

When you borrow money, the interest rate on the borrowed money is the price you pay to be able to convert your future loan payments into money today.