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chapter 5 analytical Flashcards

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1
Q

a bank offers a loan that will require you to pay 7% interest compound monthly. which of the following is closest to the EAR charged by the bank?

A

7.23%

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2
Q

a bank pays interest semiannually with an EAR of 13%. what is the periodic interest rate applicable semiannually?

A

6.30%

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3
Q

howard is saving for a holiday. he deposits a fixed amount every month in a bank account with an EAR of 14.7%. if this account pays interest every month then how much should he save form each monthly paycheck in order to have $14,000 in the account in 4 years’ time?

A

$220

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4
Q

a 12% APR with monthly compounding is closest to ?

A

an EAR of 12.68%

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5
Q

an animator needs a laptop for audio/video editing, and notices that he can pay $2600 for a Dell XPS laptop, or lease from the manufacturer for monthly payments for $75 each for four years. the designer can borrow at an interest rate of 14% APR compounded monthly. what is the cost of leasing the laptop over buying it outright?

A

leasing costs $145 more than buying

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6
Q

which of the following accounts has the highest EAR?

A

one that pays 1.0% per month

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7
Q

drew receives an inheritance that pays him $54,000 every three months for the next two years. which of the following is closest to the PV of this inheritance if the interest rate is 8.9% (EAR)?

A

$392,957

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8
Q

a bank offers an account with an APR of 5.8% and an EAR of 5.88%. how does the bank compound interest for this account?

A

semiannual compounding

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9
Q

the EAR for a loan with a stated APR of 8% compounded monthly is closest to ?

A

8.30%

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10
Q

the EAR for a loan with a stated APR of 11% compounded quarterly is closest to ?

A

11.46%

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11
Q

the EAR for a savings account with a stated APR of 5% compounded daily is closest to ?

A

5.13%

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12
Q

consider the following investment alternatives. which alternative offers you the highest effective rate of return?

A

investment D

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13
Q

consider the following investment alternatives. which alternative offers you the lowest effective rate of return?

A

investment A

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14
Q

consider the following investment alternatives. the highest effective rate of return you could earn on any of these investments is closest to ?

A

6.1610%

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15
Q

consider the following investment alternatives. the lowest effective rate of return you could earn on any of these investments is closest to ?

A

6.3830%

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16
Q

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 $350,000, or you can lease a truck from a manufacturer for five years for a monthly lease payment of $7000 (paid at the end of each month). your firm can borrow at 9% APR with quarterly compounding. the effective annual rate on your firm’s borrowings is closest to ?

A

9.31%

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17
Q

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 a manufacturer for five years for a monthly lease payment of $6000 (paid at the end of each month). your firm can borrow at 8% APR with quarterly compounding. the monthly discount rate that you should use to evaluate the truck lease is closest to ?

A

0.6623%

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18
Q

a 10% APR with quarterly compounding is equivalent to an EAR of ?

A

10.38%

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19
Q

a 12% APR with bi-monthly compounding is equivalent to an EAR of ?

A

12.62%

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20
Q

a $50,000 new car loan is taken out with the terms of 12% APR for 48 months. how much are monthly payments on this loan?

A

$1316.69

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21
Q

a $52,000 loan is taken out on a boat with the terms 3% APR for 36 months. how much are the monthly payments on this loan?

A

$1512.22

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22
Q

a pottery factory purchases a continuous belt conveyor kiln for $68,000. a 6.3% APR loan with monthly payments is taken out to purchase the kiln. if the monthly payments are $765.22, over what term is this loan being paid?

A

10 years

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23
Q

ursula wants to buy a $19,000 used car. she has savings of $2,000 plus an $800 trade-in. she wants her monthly payments to be about $282. which of the following loans offers monthly payments closest to $282?

A

7.8% APR for 72 months

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24
Q

a house costs $148,000. it is to be paid off in exactly 10 years, with monthly payments of $1737.54. what is the APR of this loan?

A

7.25%

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25
Q

what is the PV of an investment that pays $100,000 every year for four years if the interest rate is 5% APR, compounded quarterly?

A

$353,818

26
Q

a small foundry agrees to pay $220,000 tow 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 $220,000. if the account pays 12.5% APR compounded monthly, how much must be deposited every three months?

A

$24,602

27
Q

emma runs a small factory that needs a vacuum oven for brazing small fittings. she can purchase the model she needs for $180,000 up front, or she can lease it for five years at $4,200 per month. she can borrow at 7% APR, compounded monthly. assuming that the oven will be used for five years, should she purchase the oven or should she lease it?

A

buy, since the PV of the lease is $32,108 more than the cost of the oven

28
Q

a home buyer buys a house for $2,155,000. she pays 20% cash, and takes a fixed-rate mortgage for ten years at 7.70& APR. if she makes semi-monthly payments, which of the following is closest to each of her payment?

A

$10,311.34

29
Q

a construction company takes a loan of $1,531,000 to cover the cost of a new grader. if the interest rate is 6.75% APR, and payments are made monthly for five years, what percentage of the outstanding principal does the company pay in interest each month?

A

0.56%

30
Q

a homeowner has five years of monthly payments of $1400 before she has paid off her house. if the interest rate is 6% APR, what is the remaining balance on her loan?

A

$72,416

31
Q

a xerox DocuColor photocopier costing $44,000 is paid off in 60 monthly installations at 6.90% APR. after three years the company wishes to sell the photocopier. what is the minimum price for which they can sell the copier so that the can cover the cost of the balance remaining on the loan?

A

$19,433

32
Q

a ruck costing $111,000 is paid off in monthly installments over four years with 8.10% APR. after three years the owner wishes to sell the truck. what is the closest amount from he following that he needs to pay on his loan before he can sell the truck?

A

$31,195

33
Q

a small business repairs its store. the builders charge $130,000 which will be paid back in monthly installments over three years at 6.80% APR. the builders will reduce this rate to 6.30% APR if they pay $2600 up front. by approximately how much will this reduce the monthly loan payments?

A

$109

34
Q

an investor buys a property for $608,000 with a 25-year mortgage and monthly payments at 8.10% APR. after 18 months the investor resells the property for $667,525. how much cash will the investor have from the sale, once the mortgage is paid off?

A

$71,521

35
Q

michael has a credit card debt of $75,000 that has a 12% APR, compounded monthly. the minimum monthly payment only requires him to pay the interest his debt. he receives an offer for a credit card with an APR of 4% compounded monthly. if he rolls over his debt onto this card and makes the same monthly payment as before, how long will it take him to pay off his credit card debt?

A

122 months

36
Q

a homeowner has a $227,000 home with a 20-year mortgage, paid monthly at 6.60% APR. after five years, he receives $50,000 as an inheritance. if he pays this $50,000 toward his mortgage along with his regular payment, by approximately how many years will it reduce the amount of time it takes him to pay off his mortgage?

A

5.5 years

37
Q

joseph buys a hummer for $59,000, financing it with a five-year 7.60% 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?

A

57.07 months

38
Q

liam had an extension built onto his home. he financed it for 48 months with a loan at 5.00% APR. his monthly payments were $770. how much was the loan amount for this extension?

A

$33,436

39
Q

corey buys 10 Tufflift 4-post, 4.5 on car hoists for his parking garage at a total cost of $432,000. he finances this was a 5-year loan at 7.80% APR with monthly payments. after he has made the first 20 payments, how much is the outstanding principal balance on his loan?

A

$306,206

40
Q

assume your current mortgage payment is $900 per month. if you begin to pay $1000 per month (with the extra $100 per month going to principal), which of the following will be true?

A

the mortgage balance will decrease faster with $1,000 monthly payment compared to $900 monthly payments

41
Q

five years ago you took out a 30-year mortgage with an APR of 6.5% for $200,000. if you were to refinance the mortgage today for 20 years at an APR of 4.25%, how much would your monthly payment change by?

A

the monthly payment will decrease by $104.79

42
Q

five years ago you took out a 30-year mortgage with an APR of 6.20% for $206,000. if you were to refinance the mortgage today for 20 years at an APR for 3.95%, how much would you save in total interest expense?

A

$100,251

43
Q

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 $240,000, or you can lease a truck from the manufacturer for five years for a monthly lease payment of $4800 ( paid at the end of each month). your firm can borrow at 7.80% APR with quarterly compounding. the PV of the lease payments for the delivery truck is closest to ?

A

$238,132

44
Q

you are considering purchasing a new automobile with the upfront cost of $25,000 or leasing it from the dealer for a period of 60 months. the dealer offers you 4.00% APR financing for 60 months (with payments made at the end of each month). assuming you finance the entire $25,000 through the dealer, your monthly payments will be closest to ?

A

$460

45
Q

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 each month). assuming you finance the entire $26,000 through the dealer, your monthly payments will be closest to ?

A

$573

46
Q

you are purchasing a new home and need to borrow $380,000 from a mortgage lender. the mortgage lender quotes you a rate of 5.75% 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 5.45% 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 $7600 to cover points you are paying the lender. assuming you do not pay the points and borrow from the mortgage lender at 5.75%, then your monthly mortgage payment (with payments made at the end of the month) will be closest to ?

A

$2218

47
Q

you are purchasing a new home and need to borrow $260,000 from a mortgage lender. the mortgage lender quotes you a rate of 6.80% 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 6.50% 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 $5200 to cover points you are paying the lender. assuming you pay the points and borrow from the mortgage lender at 6.50%, then your monthly mortgage payment (with payments made at the end of the month) will be closest to ?

A

$1676

48
Q

two years ago you purchased a new SUV. you financed your SUV for 60 months (with payments made at the end of each month) with a loan of 5.95% APR. your monthly payments are $386.19 and you have just made your 24th monthly payment on your SUV. the amount of your original loan is closest to ?

A

$20,000

49
Q

two years ago you purchased a new SUV. you financed your SUV for 60 months (with payments made at the end of each month) with a loan of 6.15% APR. your monthly payments are $388.05 and you have just made your 24th monthly payment on your SUV. assuming that you have made all of the first 24 payments on time, then the outstanding principal balance on your SUV loan is closest to ?

A

$12,727

50
Q

what is the real interest rate given a nominal rate of 8.9% and an inflation rate of 1.9%?

A

6.9%

51
Q

in 2007, interest rates were about 4.5% and inflation was about 2.8%. what was the real interest rate in 2007?

A

1.65%

52
Q

the table above shows the interest rates available from investing in risk-free U.S. treasury securities with different investment terms. if an investment offers a risk-free cash flow of $100,000 in two years’ time, what is the PV of that cash flow?

A

$95,647

53
Q

the table above shows the interest rates available from investing in risk-free U.S. treasury securities with different investment terms. what is the PV of cash flows from an investment that yields $6000 at the end of each year for the next four years?

A

$22,639

54
Q

a bank lends some money to a business. the business will pay the bank a single payment of $176,000 in ten years’ time. how much greater is the PV of this payment if the interest rate is 9% rather than 8%?

A

$7178

55
Q

if the current inflation rate is 2.0%, then the nominal rate necessary for you to earn a 7.3% real interest rate on your investment is closest to ?

A

9.4%

56
Q

if the current inflation rate is 3.6% and you have an investment opportunity that pays 10.9%, then the real rate of interest on your investment is closest to ?

A

7.0%

57
Q

suppose the term structure of interest rates is shown below. what is the shape of the yield curve and what expectations are investors are likely to have about future interest rates?

A

inverted; lower

58
Q

suppose the term structure of interest rates is shown below. the PV of receiving $1100 per year with certainty at the end of the next three years is closest to ?

A

$3010

59
Q

suppose the term structure of interest rates is shown below. consider an investment that pays $1900 certain at the end of each of the next four years. if the investment costs $6650 and has a net present value (NPV) of $142.31, then the four year risk-free interest rate is closest to ?

A

4.51%

60
Q

suppose the term structure of interest rates is shown below. the NOV of an investment that cost $4320 and pays $1600 certain at the end of one, three, and five years is closest to ?

A

-$114.21

61
Q

in 2009, U.S. treasury yielded 0.1% while inflation was 2.7%. what was the real rate in 2009?

A

-2.6%

finance (10 decks)

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