This preview shows pages 1–49. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: 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) 1 k EAR +  1 = APR B) Equivalent n Period Discount Rate = (1 + r ) n  1 C) 1 + EAR = 1 k APR k + D) Interest Rate per Compounding Period = / APR k periods year Answer: A Explanation: A) 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) E 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) 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 is closest to: A) 4.00% B) 4.10% C) 4.08% D) 4.06% Answer: C Explanation: A) 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 offers you the highest effective rate of return? A) Investment A B) Investment B C) Investment C D) Investment D Answer: D Explanation: A) 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 a 30 year fixed rate mortgage. The mortgage lender also tells you that if you are willing to pay 2 points, they can year fixed rate mortgage....
View Full
Document
 Spring '09
 dorsman

Click to edit the document details