Exam 5: Interest Rates

Drew receives an inheritance that pays him $50,000 every three months for the next two years.Which of the following is closest to the present value (PV)of this inheritance if the interest rate is 8.5% (EAR)?

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

You are considering purchasing a new truck that will cost you $34,000.The dealer offers you 1.9% APR financing for 48 months (with payments made at the end of the month).Assuming you finance the entire $34,000 and finance through the dealer,your monthly payments will be closest to:

Your bank account pays monthly interest with an EAR of 10%.You are planning to buy a house in 10 years,and you wish to save $100,000 for the down payment.If you currently have no money in your account,how much will you need to save at the end of each month?

A home buyer buys a house for $225,000.She pays 20% cash,and takes a fixed-rate mortgage for ten years at a quoted APR of 6.26%.If she makes biweekly payments,which of the following is closest to each of her payments?

The opportunity cost of capital will generally be more than the interest rate offered by Government of Canada securities with the same term,for a risk-free investment.

A bank lends some money to a business.The business will pay the bank a single payment of $180,000 in ten years time.How much greater is the present value (PV)of this payment if the interest rate is 9% rather than 8%?

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. -The effective annual rate on your firm's borrowings is closest to:

Your bank account pays daily interest with an APR of 4.5%.What is the EAR?

In an effort to maintain price stability,it is expected that the European Central Bank will raise interest rates in the future.Which of the following is the most likely effect of such an action on short- and long-term interest rates in Europe?

Ursula wants to buy an $18,999 used car.She has savings of $2,000 plus an $800 trade-in.She wants her monthly payments to be about $272.Which of the following loans offers monthly payments closest to $272?

Use the information for the question(s) below. You are purchasing a new home and need to borrow $250,000 from a mortgage lender. The mortgage lender quotes you a rate of 6.25% 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 6.0% 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 $5000 to cover points you are paying the lender. -Assuming you do not pay the points and borrow from the mortgage lender at 6.25%,your monthly mortgage payment (with payments made at the end of the month)will be closest to:

Which of the following best describes the annual percentage rate?

Use the table for the question(s) below. Suppose the term structure of interest rates is shown below: -What is the net present value (NPV)of an investment that costs $2500 and pays $1000 certain at the end of one,three,and five years?

Given a nominal interest rate of 3% and an inflation rate of 4.5%,what is the real interest rate?

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

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?

Given a nominal interest rate of 7% and an inflation rate of 2.5%,what is the real interest rate?

A small foundry agrees to pay $250,000 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 $250,000.If the account pays 5.5% APR compounded monthly,how much must be deposited every three months?

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: