Dirección Financiera

Corporate Finance: The Core (Berk/DeMarzo)
Chapter 5 - Interest Rates


5.1 Interest Rate Quotes and Adjustments
2)
Which of the following equations is incorrect?
A)
[pic] - 1= APR
B)
Equivalent n-Period Discount Rate = (1 + r)n - 1
C)
1 + EAR = [pic]
D)
Interest Rate per Compounding Period = [pic]
Answer:
A
Explanation:
A)B)

C)

D)

Diff: 2
Topic: 5.1 Interest Rate Quotes and Adjustments
Skill: Conceptual

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%
Answer:
A
Explanation:
A)
EAR =(1 + APR / k)k - 1 = (1 + .08 / 12)12 - 1 = .083 or 8.3%
B)

C)

D)

Diff: 1
Topic: 5.1 Interest Rate Quotes and Adjustments
Skill: Analytical
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%
Answer:
C
Explanation:
A)
B)

C)
EAR = (1 + APR / k)k - 1 = (1 + .10 / 4)4 - 1 = .1038 or 10.38%
D)

Diff: 1
Topic: 5.1 Interest Rate Quotes and Adjustments
Skill: Analytical


5)
The effective annual rate (EAR) for a savings account with a stated APR of 4% compounded daily isclosest to:
A)
4.00%
B)
4.10%
C)
4.08%
D)
4.06%
Answer:
C
Explanation:
A)
B)

C)
EAR = (1 + APR / k)k - 1 = (1 + .04 / 365)365 - 1 = .04088 or 4 .08%
D)

Diff: 1
Topic: 5.1 Interest Rate Quotes and Adjustments
Skill: Analytical
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 offersyou the highest effective rate of return?
A)
Investment A
B)
Investment B
C)
Investment C
D)
Investment D
Answer:
D
Explanation:
A)
B)

C)

D)
EAR (A) = (1 + APR / k)k - 1 = (1 + .0625 / 1)1 - 1 = .0625 or 6.250%
EAR (B) = (1 + APR / k)k - 1 = (1 + .0610 / 365)365 - 1 = .06289 or 6.289%EAR (C) = (1 + APR / k)k - 1 = (1 + .06125 / 4)4 - 1 = .06267 or 6.267%
EAR (D) = (1 + APR / k)k - 1 = (1 + .0612 / 12)12 - 1 = .06295 or 6.300%
Diff: 2
Topic: 5.1 Interest Rate Quotes and Adjustments
Skill: Analytical






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 a30-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 lender.
17)
Assuming you don't pay thepoints and borrow from the mortgage lender at 6.25%, then your monthly mortgage payment (with payments made at the end of the month) will be closest to:
A)
$1570
B)
$1530
C)
$1540
D)
$1500
Answer:
C
Explanation:
A)
B)

C)
First we need the monthly interest rate = APR / k = .0625 / 12 = .005208 or...