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HW3.docx

# HW3.docx - Question 1 3 out of 3 points You plan to...

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Question 1 3 out of 3 points You plan to purchase a car. The dealer is offering special financing at an annual percentage rate (APR) of 8 percent for 100 percent of the car value. The inflation premium is 3.5 percent. If the pure rate in the market is 3 percent, what is the risk premium using the multiplicative form? Selected Answer: 1.31 % Question 2 3 out of 3 points The real rate is 4.2 percent and the nominal APR is 7 percent. What is the expected inflation premium? Use exact formulation. Selected Answer: 2.69 % Question 3 3 out of 3 points The pure rate of interest is 2.5 percent and the inflation premium is 5 percent. If you require a risk premium of 3.5 percent, what is the nominal APR rate? Use exact formulation. Selected Answer: 11.39 % Question 4 3 out of 3 points The pure rate of interest is 2.5 percent and the inflation premium is 5 percent. If you require a risk premium of 3.5 percent, what is the real rate? Use exact formulation.

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