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Finance Ch5.1

# Finance Ch5.1 - Corporate Finance The Core{BerkaeMarzol...

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Unformatted text preview: Corporate Finance: The Core {BerkaeMarzol Chapter 5 - Interest Rates 5.1 Interest Rate Quotes and Adjustments 2) Which of the following equations is incorrect? A) Ul+EAR —1=APR B] Equivalent “ii—Period Discount Rate = (1 + 1’)“ — 1 C) 1‘ 1+EAR= [1+Akﬂ] D] Interest Rate per Compounding Period = i k permds 2' year 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% 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% Anmer: C Explanation: A) B) C) EAR =(1 memoir—1 = (1 + .101414—1 = .1038 or 10.38% D) 5) The effective annual rate (EAR) for a savings account with a stated AFR of4% compounded daily is closest to: A) 4.00% B) 4.10% C) 4.08% D) 4.06% Use the tebiefor the questionfs) below. Consider the following investment alternatives: Investment Rate Compounding A 6. 25% Annual E 6. 1 0% Bail}: C 6.125 Quarterlx D 6.1 20 M onthly 6) Which alternative offers you the highest effective rate of return? A) Investment A B) Investment B C) Investment C D) Investment D ...
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