Question 1

Which of the following statements is FALSE?

Accepted Answer

A)  The actual return kept by an investor will depend on how the interest is taxed. 
B)  The equivalent after-tax interest rate is r(1 - τ). 
C)  The highest interest rate for a given horizon is the rate paid on U.S. Treasury securities. 
D)  It is important to use a discount rate that matches both the horizon and the risk of the cash flows. 
A)  The actual return kept by an investor will depend on how the interest is taxed. 
B)  The equivalent after-tax interest rate is r(1 - τ). 
C)  The highest interest rate for a given horizon is the rate paid on U.S. Treasury securities. 
D)  It is important to use a discount rate that matches both the horizon and the risk of the cash flows.

Question 2

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

Question 3

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.

Accepted Answer

A) True 
 B)False

Question 4

Use the table for the question(s) below.
Suppose the term structure of interest rates is shown below:
  
-What is the implied assumption about interest rates when using the built-in functions of a financial calculator to calculate the present value (PV) of an annuity?

Accepted Answer

The built-in functions for pre

Question 5

The yield curve is typically ________.

Accepted Answer

A)  downward sloping 
B)  upward sloping 
C)  flat 
D)  inverted 
A)  downward sloping 
B)  upward sloping 
C)  flat 
D)  inverted

Question 6

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 ________.

Accepted Answer

A)  $459 
B)  $688 
C)  $573 
D)  $802 
A)  $459 
B)  $688 
C)  $573 
D)  $802

Question 7

If the current inflation rate is 2.0%, then the nominal rate necessary for you to earn a(n) 7.3% real interest rate on your investment is closest to ________.

Accepted Answer

A)  11.3% 
B)  9.4% 
C)  13.2% 
D)  15.1% 
A)  11.3% 
B)  9.4% 
C)  13.2% 
D)  15.1%

Question 8

Your firm needs to invest in a new delivery truck. The life expectancy of the delivery truck is five years. You can purchase a new delivery truck for an upfront cost of $300,000, or you can lease a truck from the manufacturer for five years for a monthly lease payment of $6000 (paid at the end of each month). Your firm can borrow at 8.00% APR with quarterly compounding.
The monthly discount rate that you should use to evaluate the truck lease is closest to ________.

Accepted Answer

A)  0.5298% 
B)  0.7947% 
C)  0.6623% 
D)  0.6667% 
A)  0.5298% 
B)  0.7947% 
C)  0.6623% 
D)  0.6667%

Question 9

Which of the following accounts has the highest EAR?

Accepted Answer

A)  one that pays 5.4% every six months 
B)  one that pays 1.0% per month 
C)  one that pays 9.6% per year 
D)  one that pays 2.4% every three months 
A)  one that pays 5.4% every six months 
B)  one that pays 1.0% per month 
C)  one that pays 9.6% per year 
D)  one that pays 2.4% every three months

Which of the following statements is FALSE?

Consider the following investment alternatives: Which alternative offers you the highest effective rate of return?

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.

Use the table for the question(s) below. Suppose the term structure of interest rates is shown below: -What is the implied assumption about interest rates when using the built-in functions of a financial calculator to calculate the present value (PV) of an annuity?

The yield curve is typically ________.

If the current inflation rate is 2.0%, then the nominal rate necessary for you to earn a(n) 7.3% real interest rate on your investment is closest to ________.

Which of the following accounts has the highest EAR?

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

Which of the following statements is FALSE?

Consider the following investment alternatives: Which alternative offers you the highest effective rate of return?

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.

Use the table for the question(s) below. Suppose the term structure of interest rates is shown below: -What is the implied assumption about interest rates when using the built-in functions of a financial calculator to calculate the present value (PV) of an annuity?

The yield curve is typically ________.

If the current inflation rate is 2.0%, then the nominal rate necessary for you to earn a(n) 7.3% real interest rate on your investment is closest to ________.

Which of the following accounts has the highest EAR?

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