Question 1

Why, in general, do investment opportunities offer a rate greater than that offered by U.S. Treasury securities for the same horizon?

Accepted Answer

A)  Most investment opportunities bear far greater risk than those offered by U.S. Treasury securities. 
B)  The return from U.S. Treasury securities generally attracts less tax than the returns from other investments. 
C)  The opportunity cost of capital for a given horizon is generally based on U.S. Treasury securities with that same horizon. 
D)  U.S. Treasury securities are generally considered to be the best alternative to most investments. 
A)  Most investment opportunities bear far greater risk than those offered by U.S. Treasury securities. 
B)  The return from U.S. Treasury securities generally attracts less tax than the returns from other investments. 
C)  The opportunity cost of capital for a given horizon is generally based on U.S. Treasury securities with that same horizon. 
D)  U.S. Treasury securities are generally considered to be the best alternative to most investments.

Question 2

When the costs of an investment come before that investment's benefits, what will be 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). 
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).

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

Michael has a credit card debt of $60,000 that has a 10% 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 9% 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)  298 months 
B)  299 months 
C)  306 months 
D)  308 months 
A)  298 months 
B)  299 months 
C)  306 months 
D)  308 months

Question 5

A pottery factory purchases a continuous belt conveyor kiln for $68,000. A 6.3% APR loan with monthly payments is taken out to purchase the kiln. If the monthly payments are $765.22, over what term is this loan being paid?

Accepted Answer

A)  8 years 
B)  9 years 
C)  10 years 
D)  11 years 
A)  8 years 
B)  9 years 
C)  10 years 
D)  11 years

Question 6

You are in the process of purchasing a new automobile that will cost you $25,000. The dealership is offering you either a $1,000 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 $1,000 rebate and finance through your credit union or forgo the rebate and finance through the dealership at the lower 3.9% APR?

Accepted Answer

Financing through credit union:
First we

Question 7

What is the real interest rate given a nominal rate of 8.9% and an inflation rate of 1.9%?

Accepted Answer

A)  6.9% 
B)  8.2% 
C)  9.6% 
D)  11.0% 
A)  6.9% 
B)  8.2% 
C)  9.6% 
D)  11.0%

Question 8

Which of the following is/are TRUE? I. The EAR can never exceed the APR.

Accepted Answer

A)  Only I is true. 
B)  Only II.is true. 
C)  Only II & III are true. 
D)  Only I & III are true. 
A)  Only I is true. 
B)  Only II.is true. 
C)  Only II & III are true. 
D)  Only I & III are true.

Question 9

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

Accepted Answer

An APR will equal EA

Question 10

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?

Accepted Answer

A)  inverted; higher 
B)  normal; higher 
C)  inverted; lower 
D)  normal; lower 
A)  inverted; higher 
B)  normal; higher 
C)  inverted; lower 
D)  normal; lower

Why, in general, do investment opportunities offer a rate greater than that offered by U.S. Treasury securities for the same horizon?

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

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

A pottery factory purchases a continuous belt conveyor kiln for $68,000. A 6.3% APR loan with monthly payments is taken out to purchase the kiln. If the monthly payments are $765.22, over what term is this loan being paid?

What is the real interest rate given a nominal rate of 8.9% and an inflation rate of 1.9%?

Which of the following is/are TRUE? I. The EAR can never exceed the APR.

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

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?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

Filters

Exam 5: Interest Rates

Why, in general, do investment opportunities offer a rate greater than that offered by U.S. Treasury securities for the same horizon?

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

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

A pottery factory purchases a continuous belt conveyor kiln for $68,000. A 6.3% APR loan with monthly payments is taken out to purchase the kiln. If the monthly payments are $765.22, over what term is this loan being paid?

What is the real interest rate given a nominal rate of 8.9% and an inflation rate of 1.9%?

Which of the following is/are TRUE? I. The EAR can never exceed the APR.

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

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?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

Filters