Question 1

The effective annual rate (EAR)for a savings account with a stated APR of 4% compounded daily (use 365 day year)is closest to:

Accepted Answer

A) 3.92% 
B) 4.00% 
C) 4.08% 
D) 14.60%

Question 2

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) 6.295% 
D) 6.310%

Question 3

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%

Question 4

Use the table for the question(s)below.
Suppose you have the following Loans/Investments 
-If your income tax rate is 30%,then the after-tax EAR for your home equity loan is closest to:

Accepted Answer

A) 6.0% 
B) 5.9% 
C) 8.6% 
D) 5.8%

Question 5

Interest on James Taggart's credit card balances are compounded daily at an effect annual rate of 14.91%.The APR on his credit card is closest to:

Accepted Answer

A) 13.90% 
B) 13.95% 
C) 14.91% 
D) 16.08%

Question 6

If your income tax rate is 30%,then the after-tax return you receive on your money market fund is closest to:

Accepted Answer

A) 3.7% 
B) 5.1% 
C) 3.6% 
D) 4.2%

Question 7

Which of the following statements is FALSE?

Accepted Answer

A) Because interest rates may be quoted for different time intervals,it is often necessary to adjust the interest rate to a time period that matches that of our cash flows. 
B) The effective annual rate indicates the amount of interest that will be earned at the end of one year. 
C) The annual percentage rate indicates the amount of simple interest earned in one year. 
D) The annual percentage rate indicates the amount of interest including the effect of compounding.

Question 8

Suppose the interest rate is 9% APR with monthly compounding.Then the present value of an annuity that pays $250 every three months for the next five years is closest to:

Accepted Answer

A) $2280 
B) $3985 
C) $3990 
D) $3995

Question 9

The present value of the lease payments for the delivery truck is closest to:

Accepted Answer

A) $206,900 
B) $207,050 
C) $207,680 
D) $198,420

Question 10

The effective annual rate for a certificate of deposit that pays 3.9% APR compounded monthly is closest to:

Accepted Answer

A) 3.83% 
B) 3.90% 
C) 3.97% 
D) 4.04%

Question 11

A tax free municipal bond pays an effective annual rate of 7.2%.If your tax rate is 30%,then the effective annual rate that a comparable corporate bond would have to offer you to earn an equivalent after tax return would be closest to:

Accepted Answer

A) 5.0% 
B) 7.2% 
C) 9.4% 
D) 10.3%

Question 12

Use the information for the question(s)below.
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 $200,000,or you can lease a truck from the manufacturer for five years for a monthly lease payment of $4000 (paid at the end of each month).Your firm can borrow at 6% APR with quarterly compounding.
-Should you purchase the delivery truck or lease it? Why?

Accepted Answer

The answer of Use the information for the question(s)below.
Your firm...

Question 13

You are offered an investment that offers and effective annual rate of 8%.If this investment offers continuous compounding,then the APR for this investment is closest to:

Accepted Answer

A) 7.70% 
B) 8.00% 
C) 8.25% 
D) 8.33%

Question 14

The total amount of interest that Dagny will pay during the first three months of her mortgage is closest to:

Accepted Answer

A) $1345 
B) $5380 
C) $5395 
D) $6740

Question 15

Use the information for the question(s)below.
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 5.9% APR.You monthly payments are $617.16 and you have just made your 24th monthly payment on your SUV.
-The amount of your original loan is closest to:

Accepted Answer

A) $14,808 
B) $22,212 
C) $32,000 
D) $37,020

Question 16

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

Accepted Answer

The answer of Should the nominal interest rate ever be...

Question 17

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

Accepted Answer

A) 7.72% 
B) 8.00% 
C) 8.30% 
D) 8.66%

Question 18

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

Accepted Answer

A) 6.150% 
B) 6.250% 
C) 6.289% 
D) 6.300%

Question 19

If you forgo the $2500 rebate and finance your new car through the dealership your monthly payments (with payments made at the end of the month)will be closest to:

Accepted Answer

A) $520 
B) $573 
C) $595 
D) $799

Question 20

What is the effective after-tax rate of each instrument,expressed as an EAR?

Accepted Answer

The answer of What is the effective after-tax rate of...

Exam 5: Interest Rates

The effective annual rate (EAR) for a savings account with a stated APR of 4% compounded daily (use 365 day year) is closest to: