Finance 303 CH 5 Part 2
Which of the following is the general formula for the EAR when m is the number of times interest is compounded in a year?
(1+quoted rate/m)^m - 1
Which of the following is the simplest form of loan?
A pure discount loan
Which of the following is the appropriate spreadsheet function to convert a quoted rate of 12% compounded quarterly to an EAR?
EFFECT(0.12,4)
True or false: With interest-only loans, the principle is never repaid.
False
The general formula for ______ is (1+quoted rate/m)^m - 1.
The EAR
True or false: Interest rates can be quoted in various ways.
True
The effective annual rate (EAR) takes into account the ______ of interest that occurs within a year.
compounding
One step in calculating an EAR is to __________ the quoted rate by the number of times that the interest is compounded.
divide
Assume interest is compounded monthly. The ______ annual rate will express this rate as though it were compounded annually.
effective
The entire principal of an interest-only loan is the:
original loan amount
Amortization is the process of paying off loans by regularly reducing the _________.
principal
The original amount of a loan is termed the loan ___________.
principal
If you borrow $15,000 today at 5% annual interest to be repaid in one year as a lump sum, this is termed a _______________ .
pure discount loan
EAR = (1 + __________ rate/m)m - 1
quoted
With typical interest-only loans, the entire principal is:
repaid at some point in the future
True or false: Using the spreadsheet formula to convert a quoted rate (or an APR) to an effective rate, use the formula NOMINAL(effect_rate, npery).
False. Use EFFECT
Which of the following is not a way to amortize a loan?
Fixed interest payments only
Because of __________ and _________, interest rates are often quoted in many different ways.
tradition; legislation