Chapter 10 - Interest Rates And Mortgages

Question 1

When comparing interest rates to one another, it is necessary to compare rates that have the SAME frequency of compounding in order to accurately assess the cost of borrowing

Question 2

Define the nominal interest rates

Nominal Interest Rate

Is an interest rate quoted as a rate per annum. It is equal to the interest rate per compounding period multiplied by the number of compounding periods.

Question 3

What is an outstanding balance?

Outstanding balance is the amount of principal owing to the lender at a specific point in time.

Question 4

When is the outstanding balance of a loan the greatest?

At the time loan is created. At the beginning

Question 5

Two interest rates are said to be equivalent if:

For the same amount borrowed, over the same period of time, the same amount is owed at the end of the period of time.

Question 6

Define effective annual rate of interest

An effective annual rate of j1 is an annual interest rate compounded once a year.

Question 7

The amortization period is used to calculate the size of the required payments

Question 8

When is a monthly payment is divided in half and paid every two weeks, it is known as a: Bi weekly accelerated

Question 9

With constant payment mortgage loan, a large portion of each of the early payment is allocated to the payment of INTEREST

Question 10

Which of the following is used to calculate the size of the required mortgage payments. The loan term or the loan amortization period.

Loan amortization period

Question 11

If given N as months, must use this as is. Say they give you 24 months

If they say the person wants to earn effective annual rate = this equals to J1.

Question 12

Interest Only Loan Payments

If you put Loan amount in PV and FV (negative) Same amount in both. The calculator knows you are doing interest only Payments.

Question 13

Accelerated bi weekly payments

Step 1. Calculate Monthly Payments as per contract. You calculate OSB at term to see difference in savings

Step 2. Divide monthly by 2 and plug the PMT.

Step 3. Do EPN and change P/yr to 26.

Step 4 calculate OSB end of term. And subtract from OSB of Monthly payments

Question 14

In Questions, such as Market Value of the Mortgage(MVM) or Offer (MVO).

If there is an AGO you don’t push FV. Only if there is a TERM you press FV.