29 Jun Question Interest Rates MULTIPLE CHOICE QUESTIONS
Question
Interest Rates
MULTIPLE CHOICE QUESTIONS
5.1 Interest Rate Quotes and Adjustments
2)
Which of the following equations is incorrect?
A)
– 1= APR
B)
Equivalent n-Period Discount Rate = (1 + r)n – 1
C)
1 + EAR =
D)
Interest Rate per Compounding Period =
3)
The effective annual rate (EAR) for a loan with a stated APR of 8% compounded monthly is closest to:
A)
8.30%
B)
8.33%
C)
8.00%
D)
8.24%
4)
The effective annual rate (EAR) for a loan with a stated APR of 10% compounded quarterly is closest to:
A)
10.52%
B)
10.25%
C)
10.38%
D)
10.00%
5)
The effective annual rate (EAR) for a savings account with a stated APR of 4% compounded daily is closest to:
A)
4.00%
B)
4.10%
C)
4.08%
D)
4.06%
Use the table for the question(s) below.
Consider the following investment alternatives:
Investment
Rate
Compounding
A
6.25%
Annual
B
6.10%
Daily
C
6.125
Quarterly
D
6.120
Monthly
6)
Which alternative offers you the highest effective rate of return?
A)
Investment A
B)
Investment B
C)
Investment C
D)
Investment D
l
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 2 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
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