Chapter 5 part 2
In the Excel setup of a loan amortization problem, which of the following occurs?
- the payment is found with = PMT(rate, nper, -pv, fv) - to find the principal payment each month, you subtract the dollar interest payment from the fixed payment.
which of the following are ways to amortize a loan
-pay the interest each period plus some fixed amount of the principal -pay principal and interest every period in a fixed payment
Which of the following is the simplest form of loan?
A pure discount loan
The general formula for ____ is (1+quoted rat/m)^m - 1
EAR
If the interest rate is greater than zero, the value of an annuity is always ____ an ordinary annuity.
Greater than
More frequent compounding leads to:
Higher EARs
Compounding during the year can lead to a difference between the ______ rate and the effective rate.
Quoted
T/F: The interest rate charged per period divided by the number of periods per year.
TRUE
The interest rate charged per period multiplied by the number of periods per year is equal to ___ ____ ____ on a loan.
annual percentage rate
One step in calculating the EAR is to ______ the quoted rate by the number of times that the interest is compounded.
divide
The ___ annual rate is the interest rate expressed as if it were compounded once per year.
effective
The ____ annual rate is the interest rate expressed as if it were compounded once per year.
effective
Which of the following is NOT a way to amortize a loan?
fixed interest payments only
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.
medium
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 loan
medium
Using an Excel spreadsheet to solve for the payment in an amortized loan, enter the number of periods as the ____ value.
nper
Using an Excel spreadsheet to solve for the payment in an amortized loan, enter the number of periods as the _____ value.
nper
The entire principal of an interest-only loan is the:
original loan amount
The entire principle 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
Amortization is the process of paying off loans by regularly reducing the _____
principle
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
The interest rate charge per period multiplied by the number of periods per year is equal to ____ _____ _____ on a loan.
Annual percentage rate
Which of the following is the appropriate spreadsheet function to convert a quote rate of 12% compounded quarterly to an EAR?
EFFECT (0.12,4)
T/F: The effective annual rate is the interest rate expressed in terms of the interest payment made each period.
False
T/F: Using the spreadsheet formula to convert a quoted rate (or an APR) to an effective rate, use the formula NOMINAL (effect_rate, npery).
False
T/F: the effective annual rate is the interest rate expressed in terms of the interest payment made each period.
False
T/F: the interest rate changed per period divided by the number of periods per year.
False
T/F: using the spreadsheet formula to convert a quoted rate (or an APR) to an effective rate, use the formula NOMINAL(effect_rate, npery)
False
T/F: with interest-only, the principle is never repaid.
False
T/F: A simple way to amortize a loan is to have the borrower pay the interest each period plus a fixed amount.
True
T/F: a simple way to amortize a loan is to have the borrower pay the interest each period plus a fixed amount.
True
The most common way to repay a loan is to pay ____.
a single fixed payment every period
The original amount of a loan is termed the loan _____
principle
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
quote
Compounding during the year can lead to a difference between the ____ rate and the effective rate.
quoted
Which typical interest-only loans, the entire principal is:
repaid at some point in the future
