Finc 311 Chapter 5

medium (term)

A simple way to amortize a loan is to have the borrower pay the interest each period plus some fixed amount. This approach is common with ________________-term business loans.

Principle

Amortization is the process of paying off loans by regularly reducing the _________.

Quoted

Compounding during the year can lead to a difference between the ______________ rate and the effective rate.

pure discount loan

If you borrow $15,000 today at 5% annual interest to be repaid in one year as a lump sum, this is termed a _______________ .

Higher ERA's

More frequent compounding leads to:

divide

One step in calculating an EAR is to_______________ the quoted rate by the number of times that the interest is compounded.

Compounding

The effective annual rate (EAR) takes into account the ______ of interest that occurs within a year.

nper

Using an Excel spreadsheet to solve for the payment in an amortized loan, enter the number of periods as the __________ value

the EAR

The general formula for ______ is (1+quoted rate/m)m - 1.

False

The interest rate charged per period divided by the number of periods per year.

annual percentage rate

The interest rate charged per period multiplied by the number of periods per year is equal to _____________ __________ _______ on a loan.

In the Excel setup of a loan amortization problem, which of the following occurs?

To find the principal payment each month, you subtract the dollar interest payment from the fixed payment. && The payment is found with = PMT(rate, nper, -pv, fv).

False

The effective annual rate is the interest rate expressed in terms of the interest payment made each period.

original loan amount

The entire principal of an interest-only loan is the:

False

Using the spreadsheet formula to convert a quoted rate (or an APR) to an effective rate, use the formula NOMINAL(effect_rate, npery).

EFFECT(0.12,4)

Which of the following is the appropriate spreadsheet function to convert a quoted rate of 12% compounded quarterly to an EAR?

A pure discount loan

Which of the following is the simplest form of loan?

False

With interest-only loans, the principle is never repaid.