FIN 3716 Ch. 5

Assume your current mortgage payment is $900 per month. If you begin to pay $1,000 per month (with the extra $100 per month going to principal), which of the following will be TRUE? A) The mortgage balance will decrease faster with $1,000 monthly payment compared to $900 monthly payments. B) The total amount paid (principal and interest) will increase with $1,000 monthly payment compared to $900 monthly payments. C) The total interest expense will increase with $1,000 monthly payment compared to $900 monthly payments. D) The total principal paid will decrease with $1,000 monthly payment compared to $900 monthly payments.

A

Term: 1 year 2 years 3 years 5 years 10 years 20 years Rate: 5.00% 5.20% 5.40% 5.50% 5.76% 5.9% Given the above term structure of interest rates, which of the following is most likely in the future? Option I. Interest rates will fall. Option II. Economic growth will slow. Option III. Long-term rates will rise relative to short term rates. A) Option I only B) Option II only C) Option III only D) Options I and II

A

Investment APR Compounding A 6.9030% Annual B 6.6992% Daily C 6.7787% Quarterly D 6.7643% Monthly Which alternative offers you the lowest effective rate of return? A) Investment A B) Investment B C) Investment C D) Investment D

A) EAR (A) = (1 + APR / m)m - 1 = (1 + 0.069030/1)1 - 1 = 6.9030% EAR (B) = (1 + APR / m)m - 1 = (1 + 0.066992 /365)365 - 1 = 6.9280% EAR (C) = (1 + APR / m)m - 1 = (1 + 0.067787/4)4 - 1 = 6.9530% EAR (D) = (1 + APR / m)m - 1 = (1 + 0.067643 /12)12 - 1 = 6.9780%

What is the real interest rate given a nominal rate of 8.9% and an inflation rate of 1.9%? A) 6.9% B) 8.2% C) 9.6% D) 11.0%

A) (0.089) / (1+ 0.019) - 1 =0.06869;real rate =6.869

In 2009, U.S. Treasury yielded 0.1%, while inflation was 2.7%. What was the real rate in 2009? A) -2.6% B) 2.6% C) -2.8% D) 2.8%

A) 0.1% - 2.7% = -2.6%

What is the present value (PV) of an investment that pays $100,000 every year for four years if the interest rate is 5% APR, compounded quarterly? A) $353,818 B) $389,200 C) $424,581 D) $459,963

A) Calculate EAR =5.0945%; Calculate PV Annuity = $353,818

A small foundry agrees to pay $220,000 two years from now to a supplier for a given amount of coking coal. The foundry plans to deposit a fixed amount in a bank account every three months, starting three months from now, so that at the end of two years the account holds $220,000. If the account pays 12.5% APR compounded monthly, how much must be deposited every three months? A) $24,602 B) $27,063 C) $29,523 D) $31,983

A) Calculate the EAR =13.2416%; calculate APR with quarterly compounding = 12.6307%; calculate the payment for 8 quarters with $220,000 as future value (FV).

The table above shows the rate of return (APR) for four investment alternatives. Which offers the highest EAR? Investment: A B C D Rate of Return: 6.0% 5.9% 5.8% 5.7% Compounding: Yearly Semiannually Monthly Weekly A) Investment A B) Investment B C) Investment C D) Investment D

A) Calculate the EAR for each; A =6.0%; B =5.99%; C =5.96%; D = 5.86%.

Liam had an extension built onto his home. He financed it for 48 months with a loan at 5.00% APR. His monthly payments were $770. How much was the loan amount for this extension? A) $33,436 B) $40,123 C) $46,810 D) $53,497

A) Calculate the PV annuity of $770 for 48 months at 5.00/12 = 0.416667%, which = $33,436.

The effective annual rate (EAR) for a loan with a stated APR of 8% compounded monthly is closest to ________. A) 8.30% B) 9.13% C) 9.96% D) 10.79%

A) EAR = (1 + APR / m)m - 1 = (1 + 0.08/12)12 - 1 = 0.0830 or 8.30%.

A bank lends some money to a business. The business will pay the bank a single payment of $176,000 in ten yearsʹ time. How much greater is the present value (PV) of this payment if the interest rate is 9% rather than 8%? A) $7178 B) $5742 C) $8613 D) $10,049

A) PV of $180,000 at 8% for 10 years =$81,522.05 ; PV of $180,000 at 9% for 10 years = $74,344.30 ; difference = $7177.75

A small business repairs its store. The builders charge them $130,000 which will be paid back in monthly installments over three years at 6.80% APR. The builders will reduce this rate to 6.30% APR if they pay $2600 up front. By approximately how much will this reduce the monthly loan repayments? A) $109 B) $218 C) $164 D) $55

A) The first step is to calculate the monthly payment using a present value (PV) of $130,000 monthly interest rate of 6.80/12 = 0.566667%, and 36 periods, which = $4002.15; the second step is to use that monthly payment using a monthly interest rate of 6.30/12 = 0.525000% and a PV of $130,000 - $2600 = $127,400 to calculate the payment = $3893.10. The difference of the two = $4002.15 - $3893.10 = $109.05

A homeowner has a $227,000 home with a 20-year mortgage, paid monthly at 6.60% APR. After five years he receives $50,000 as an inheritance. If he pays this $50,000 toward his mortgage along with his regular payment, by approximately how many years will it reduce the amount of time it takes him to pay off his mortgage? A) 5.5 years B) 8.6 years C) 10.2 years D) 12.8 years

A) The first step is to calculate the monthly payment using a present value (PV) of $227,000, monthly interest rate of 6.60/12 = 0.55%, and 240 periods, which = $1705.842 ; the second step is to use that monthly payment to calculate the balance at the end of five years, which = $194,594.353 ; next step is to reduce this balance by $50,000 to the new outstanding balance of $144,594.353 ; now calculate the number of months required to pay off this balance, which = 114.45; the last step is to calculate the difference between 180 - 114.45 = 65.55, when divided by 12 gives 5.5 years.

A Xerox DocuColor photocopier costing $44,000 is paid off in 60 monthly installments at 6.90% APR. After three years the company wishes to sell the photocopier. What is the minimum price for which they can sell the copier so that they can cover the cost of the balance remaining on the loan? A) $19,433 B) $15,546 C) $23,319 D) $27,206

A) The first step is to calculate the monthly payment using a present value (PV) of $44,000 monthly interest rate of 6.90/12% = 0.575000%, and 60 periods, which = $869.18; the second step is to use that monthly payment to calculate the present value (PV) of 24 months remaining payment keeping the interest rate unchanged

A construction company takes a loan of $1,531,000 to cover the cost of a new grader. If the interest rate is 6.75% APR, and payments are made monthly for five years, what percentage of the outstanding principal does the company pay in interest each month? A) 0.56% B) 5.63% C) 0.51% D) 0.61% E) 0.66%

A) The percentage of outstanding principal paid is the monthly periodic interest rate = 6.75/12 = 0.56%.

Elinore is asked to invest $5100 in a friendʹs business with the promise that the friend will repay $5610 in one year. Elinore finds her best alternative to this investment, with similar risk, is one that will pay her $5508 in one year. U.S. securities of similar term offer a rate of return of 7%. What is the opportunity cost of capital in this case? A) 7% B) 8% C) 9% D) 10%

B) $5508 - $5100 =$408; $408 / $5100 =0.08 or 8%

A home buyer buys a house for $2,155,000 . She pays 20% cash, and takes a fixed-rate mortgage for ten years at 7.70% APR. If she makes semi-monthly payments, which of the following is closest to each of her payment? A) $11,342.47 B) $10,311.34 C) $12,373.61 D) $8249.07

B) Calculate bimonthly payment when PV of ordinary annuity = $1,724,000 , periodic interest = 7.70/24%, and number of periods = 240.

Which of the following accounts has the highest EAR? A) one that pays 5.4% every six months B) one that pays 1.0% per month C) one that pays 9.6% per year D) one that pays 2.4% every three months

B) Calculate the EAR for each choice and pick the highest: A = 11.09%; B= 12.68%; C = 9.60%; D = 9.95%.

Five years ago you took out a 30-year mortgage with an APR of 6.5% for $200,000. If you were to refinance the mortgage today for 20 years at an APR of 4.25%, how much would your monthly payment change by? A) The monthly payment will increase by $104.79. B) The monthly payment will decrease by $104.79 C) The monthly payment will increase by $343.12. D) The monthly payment will decrease by $343.12

B) Current Mortgage Payment: P/Y =12, N =360, I/Y =6.5, PV = $200,000, Solve for PMT = $1,264.14 Current Mortgage Balance: P/Y = 12, N = 300, I/Y = 6.5, PMT = $1,264.14, Solve for PV = $187,221.9 New Mortgage Payment: P/Y = 12, N = 240, I/Y = 4.25, PV = $187,222.54, Solve for PMT = $1,159.35 Current Payment - New Payment = $1,159.35- $1,264.14 = -$104.79

Two years ago you purchased a new SUV. You financed your SUV for 60 months (with payments made at the end of the month) with a loan at 5.95% APR. Your monthly payments are $386.19 and you have just made your 24th monthly payment on your SUV. The amount of your original loan is closest to ________. A) $22,000 B) $20,000 C) $24,000 D) $28,000

B) First we need the monthly interest rate =APR / m = 0.0595 / 12 =0.004958 or 0.4958%. Now: I = 0.4958 FV = 0 N = 60 PMT = $386.19 Compute PV = $20,000

Two years ago you purchased a new SUV. You financed your SUV for 60 months (with payments made at the end of the month) with a loan at 6.15% APR. Your monthly payments are $388.05 and you have just made your 24th monthly payment on your SUV. Assuming that you have made all of the first 24 payments on time, then the outstanding principal balance on your SUV loan is closest to ________. A) $14,000 B) $12,727 C) $15,273 D) $17,818

B) First we need the monthly interest rate =APR / m = 0.0615 / 12 =0.005125 or 0.5125%. Now: I = 0.5125 FV = 0 N = 36 (remaining payments 60 - 24 = 36) PMT = 388.05 Compute PV = $12,727.23 .

You are considering purchasing a new automobile with the upfront cost of $25,000 or leasing it from the dealer for a period of 60 months. The dealer offers you 4.00% APR financing for 60 months (with payments made at the end of the month). Assuming you finance the entire $25,000 through the dealer, your monthly payments will be closest to ________. A) $368 B) $460 C) $552 D) $645

B) First we need the monthly interest rate =APR / m=0.0400 / 12 = 0.003333 or 0.3333%. Now: PV =$25,000 I = 0.3333 FV = 0 N = 60 Compute PMT = $460.41

You are purchasing a new home and need to borrow $260,000 from a mortgage lender. The mortgage lender quotes you a rate of 6.80% APR for a 30-year fixed rate mortgage. The mortgage lender also tells you that if you are willing to pay two points, they can offer you a lower rate of 6.50% APR for a 30-year fixed rate mortgage. One point is equal to 1% of the loan value. So if you take the lower rate and pay the points, you will need to borrow an additional $5200 to cover points you are paying the lender. Assuming you pay the points and borrow from the mortgage lender at 6.50%, then your monthly mortgage payment (with payments made at the end of the month) will be closest to ________. A) $1844 B) $1676 C) $2011 D) $2347

B) First we need the monthly interest rate =APR / m=0.0650 / 12 = 0.005417 or 0.5417%. Now: PV = 265,200 (2 points) I = 0.5417 FV = 0 N = 360 (30 years × 12 months) Compute PMT = $1676.24

A $50,000 new car loan is taken out with the terms 12% APR for 48 months. How much are monthly payments on this loan? A) $1448.36 B) $1580.03 C) $1316.69 D) $1711.70

C) Calculate the PMT when PV of ordinary annuity =$50,000, periodic interest = 12/12%, and number of periods = 48.

Your firm needs to invest in a new delivery truck. The life expectancy of the delivery truck is five years. You can purchase a new delivery truck for an upfront cost of $240,000, or you can lease a truck from the manufacturer for five years for a monthly lease payment of $4800 (paid at the end of each month). Your firm can borrow at 7.80% APR with quarterly compounding. The present value (PV) of the lease payments for the delivery truck is closest to ________. A) $190,506 B) $238,132 C) $285,758 D) $333,385

B) First we need to calculate the monthly discount rate for the lease arrangement. EAR = (1 + APR / m)m - 1 = (1 + 0.078 / 4)4 - 1 = 0.08031 or 8.031% Monthly rate = (1 + EAR)(1/12) - 1= (1 + 0.08031)(1/12) - 1 = 0.006458 = 0.6458% Now we can apply the PVA formula to calculate the PV of the lease or by calculator: I = 0.6458; N = 60 (5 years × 12 months/yr); FV = 0; PMT = $4800 Compute PV = $238,132.

Joseph buys a Hummer for $59,000, financing it with a five-year 7.60% APR loan paid monthly. He decides to pay an extra $50 per month in addition to his monthly payments. Approximately how long will he take to pay off the loan under these conditions? A) 59.57 months B) 57.07 months C) 54.57 months D) 60.57 months

B) The first step is to calculate the monthly payment using a present value (PV) of $59,000, monthly interest rate of 7.60/12 = 0.633333%, and 60 periods, which = $1185.04; the second step is to add $50 to this monthly payment giving the new monthly payment of $1235.04; the last step is to calculate the time required to pay off the loan = 57.0740 months

If the current inflation rate is 2.0%, then the nominal rate necessary for you to earn a(n) 7.3% real interest rate on your investment is closest to ________. A) 11.3% B) 9.4% C) 13.2% D) 15.1%

B) nominal=(1 + inflation)(1 + real) - 1 =(1 + 0.073)(1 + 0.02) - 1 = 0.0945or 9.4%

Investment APR Compounding A 6.0860% Annual B 5.9320% Daily C 5.9997% Quarterly D 5.9936% Monthly The highest effective rate of return you could earn on any of these investments is closest to ________. A) 6.0860% B) 6.1110% C) 6.1610% D) 6.1360%

C) EAR (A) = (1 + APR / m)m - 1 = (1 + 0.060860/1)1 - 1 = 6.0860% EAR (B) = (1 + APR / m)m - 1 = (1 + 0.059320 /365)365 - 1 = 6.1110% EAR (C) = (1 + APR / m)m - 1 = (1 + 0.059997/4)4 - 1 = 6.1360% EAR (D) = (1 + APR / m)m - 1 = (1 + 0.059936 /12)12 - 1 = 6.1610%

A pottery factory purchases a continuous belt conveyor kiln for $68,000. A 6.3% APR loan with monthly payments is taken out to purchase the kiln. If the monthly payments are $765.22, over what term is this loan being paid? A) 8 years B) 9 years C) 10 years D) 11 years

C) Calculate N when PV of ordinary annuity =$68,000, periodic interest = 6.3/12%, and monthly payments = $765.22. N = 156 periods; years = 13 years

A homeowner has five years of monthly payments of $1400 before she has paid off her house. If the interest rate is 6% APR, what is the remaining balance on her loan? A) $57,933 B) $86,899 C) $72,416 D) $101,382

C) Calculate PV of the ordinary annuity of $1400 paid per month at a periodic interest rate of 6 /12 = 0.500000% over 60 months = $72,416

A house costs $148,000. It is to be paid off in exactly ten years, with monthly payments of $1737.54. What is the APR of this loan? A) 6.25% B) 5.25% C) 7.25% D) 8.25%

C) Calculate the periodic interest rate when PV of ordinary annuity =$148,000, number of months = 120, and monthly payments = $1737.54; the periodic interest rate = 0.60%, which multiplied by 12 gives an APR = 7.25%.

A 10% APR with quarterly compounding is equivalent to an EAR of ________. A) 10.00% B) 10.47% C) 10.38% D) 9.81%

C) EAR = (1 + 0.10 / 4)4 - 1 = 10.38%

The effective annual rate (EAR) for a savings account with a stated APR of 5% compounded daily is closest to ________. A) 5.64% B) 6.15% C) 5.13% D) 6.66%

C) EAR = (1 + APR / m)m - 1 = (1 + 0.05 / 365)365 - 1 = 0.0513 or 5.13%

Your firm needs to invest in a new delivery truck. The life expectancy of the delivery truck is five years. You can purchase a new delivery truck for an upfront cost of $300,000, or you can lease a truck from the manufacturer for five years for a monthly lease payment of $6000 (paid at the end of each month). Your firm can borrow at 8.00% APR with quarterly compounding. The monthly discount rate that you should use to evaluate the truck lease is closest to ________. A) 0.5298% B) 0.7947% C) 0.6623% D) 0.6667%

C) EAR = (1 + APR / m)m - 1 = (1 + 0.08/4)4 - 1 = 0.08243 or 8.243% Monthly rate = (1 + EAR)(1/12) - 1= (1 + 0.08243)(1/12) - 1 = 0.006623 = 0.6623%

The effective annual rate (EAR) for a loan with a stated APR of 11% compounded quarterly is closest to ________. A) 12.61% B) 13.75% C) 11.46% D) 14.90%

C) EAR = (1 + APR / m)m - 1 = (1 + 0.11/4)4 - 1 = 0.1146 or 11.46%

A 12% APR with monthly compounding is closest to ________. A) an EAR of 10.14% B) an EAR of 15.22% C) an EAR of 12.68% D) an EAR of 25.36%

C) EAR = {(1 + 0.12) / m}m - 1 = 12.68%.

A bank offers a loan that will requires you to pay 7% interest compounded monthly. Which of the following is closest to the EAR charged by the bank? A) 5.78% B) 8.68% C) 7.23% D) 14.46%

C) EAR = {(1 + APR) / m}m - 1; EAR = {(1 + 0.07) / 12}12 - 1; 0.0723 × 100 = 7.23%

Howard is saving for a holiday. He deposits a fixed amount every month in a bank account with an EAR of 14.7%. If this account pays interest every month then how much should he save from each monthly paycheck in order to have $14,000 in the account in four yearsʹ time? A) $176 B) $308 C) $220 D) $352

C) First calculate the APR using an EAR of 14.7% and monthly compounding, which comes to 13.7937%. Then using a periodic rate of 13.7937/12, calculate the payment over 48 months that gives a future value (FV) of $14,000, which is $110.15.

Drew receives an inheritance that pays him $54,000 every three months for the next two years. Which of the following is closest to the present value (PV) of this inheritance if the interest rate is 8.9% (EAR)? A) $314,366 B) $471,549 C) $392,957 D) $432,000

C) First calculate the APR with quarterly compounding, which equals 8.62%; then using a periodic interest rate of 8.62/4%, calculate the present value (PV) of an annuity of $54,000 for eight periods

A bank pays interest semiannually with an EAR of 13%. What is the periodic interest rate applicable semiannually ? A) 5.04% B) 7.56% C) 6.30% D) 12.60%

C) First convert the EAR to APR with semiannually compounding, which equals 12.60%; now divide this by 2 to get the periodic interest rate = 6.30%.

You are purchasing a new home and need to borrow $380,000 from a mortgage lender. The mortgage lender quotes you a rate of 5.75% APR for a 30-year fixed rate mortgage. The mortgage lender also tells you that if you are willing to pay two points, they can offer you a lower rate of 5.45% APR for a 30-year fixed rate mortgage. One point is equal to 1% of the loan value. So if you take the lower rate and pay the points, you will need to borrow an additional $7600 to cover points you are paying the lender. Assuming you do not pay the points and borrow from the mortgage lender at 5.75%, then your monthly mortgage payment (with payments made at the end of the month) will be closest to ________. A) $2439 B) $2661 C) $2218 D) $3105

C) First we need the monthly interest rate =APR / m = 0.0575 / 12 =0.004792 or 0.4792%. Now: PV = $380,000 (no points) I = 0.4792 FV = 0 N = 360 (30 years × 12 months) Compute PMT = $2217.58

You are considering purchasing a new automobile with the upfront cost of $26,000 or leasing it from the dealer for a period of 48 months. The dealer offers you 2.80% APR financing for 48 months (with payments made at the end of the month). Assuming you finance the entire $26,000 through the dealer, your monthly payments will be closest to ________. A) $459 B) $688 C) $573 D) $802

C) First we need the monthly interest rate =APR / m=0.0280 / 12 = 0.002333 or 0.002333%. Now: PV = $26,000 I = 0.2333 FV = 0 N = 48 Compute PMT = $573.20

A truck costing $111,000 is paid off in monthly installments over four years with 8.10% APR. After three years the owner wishes to sell the truck. What is the closest amount from the following list that he needs to pay on his loan before he can sell the truck? A) $24,956 B) $37,434 C) $31,195 D) $43,673

C) The first step is to calculate the monthly payment using a present value (PV) of $111,000 monthly interest rate of 8.10/12 = 0.675000%, and 48 periods, which = $2715.05; the second step is to use that monthly payment to calculate the present value (PV) of 12 months remaining payment keeping the interest rate unchanged.

Corey buys 10 Tufflift 4-post, 4.5-ton car hoists for his parking garage at a total cost of $432,000. He finances this with a five-year loan at 7.80% APR with monthly payments. After he has made the first 20 payments, how much is the outstanding principal balance on his loan? A) $244,965 B) $428,689 C) $306,206 D) $612,412

C) The first step is to calculate the monthly payment using a present value (PV) of $432,000, monthly interest rate of 7.80/12 = 0.650000%, and 60 periods, which = $8718.11; the second step is to use that monthly payment to calculate the present value (PV) of 40 months keeping the interest rate unchanged, which = $306,206.10 .

In 2007, interest rates were about 4.5% and inflation was about 2.8%. What was the real interest rate in 2007? A) 1.58% B) 1.61% C) 1.62% D) 1.65%

D

An investor buys a property for $608,000 with a 25-year mortgage and monthly payments at 8.10% APR. After 18 months the investor resells the property for $667,525. How much cash will the investor have from the sale, once the mortgage is paid off? A) $57,216 B) $100,129 C) $71,521 D) $143,041

C) The first step is to calculate the monthly payment using a present value (PV) of $608,000, monthly interest rate of 8.10/12 = 0.675000%, and 300 periods, which = $4732.9906 ; the second step is to use that monthly payment to calculate the present value (PV) of 282 months keeping the interest rate unchanged which = $596,004.59 ; finally calculate the difference between $667,525 - $596,004.59 = $71,520.55 .

An animator needs a laptop for audio/video editing, and notices that he can pay $2600 for a Dell XPS laptop, or lease from the manufacturer for monthly payments of $75 each for four years. The designer can borrow at an interest rate of 14% APR compounded monthly. What is the cost of leasing the laptop over buying it outright? A) Leasing costs $116 more than buying. B) Leasing costs $174 more than buying. C) Leasing costs $145 more than buying. D) Leasing costs $289 more than buying.

C) Using a periodic rate of 14% / 12 per month, calculate the present value (PV) of an annuity of $75 for 48 months; then subtract $2600 to calculate the difference in costs.

If the current inflation rate is 3.6% and you have an investment opportunity that pays 10.9%, then the real rate of interest on your investment is closest to ________. A) 8.5% B) 9.9% C) 11.3% D) 7.0%

D) (1 + nominal rate) =(1 + inflation rate)(1 + real rate) real interest rate = (1 + nominal rate)/(1 + inflation rate) - 1 = 0.070463 or 7.05%

Consider the following investment alternatives: Investment APR Compounding A 6.2200% Annual B 6.0583% Daily C 6.1277% Quarterly D 6.1204% Monthly Which alternative offers you the highest effective rate of return? A) Investment A B) Investment B C) Investment C D) Investment D

D) EAR (A) = (1 + APR / m)m - 1 = (1 + 0.062200/1)1 - 1 = 6.2200% EAR (B) = (1 + APR / m)m - 1 = (1 + 0.060583/365)365 - 1 = 6.2450% EAR (C) = (1 + APR / m)m - 1 = (1 + 0.061277/4)4 - 1 = 6.2700% EAR (D) = (1 + APR / m)m - 1 = (1 + 0.061204/12)12 - 1 = 6.2950%

Ursula wants to buy a $19,000 used car. She has savings of $2,000 plus an $800 trade-in. She wants her monthly payments to be about $282. Which of the following loans offers monthly payments closest to $282? A) 7.8% APR for 36 months B) 7.8% APR for 48 months C) 7.8% APR for 60 months D) 7.8% APR for 72 months

D) Calculate Nwhen PV of ordinary annuity =$19,000 - $2,000 - $800 =$16,200, periodic interest = 7.8/12%, and monthly payments = $282.

Emma runs a small factory that needs a vacuum oven for brazing small fittings. She can purchase the model she needs for $180,000 up front, or she can lease it for five years for $4,200 per month. She can borrow at 7% APR, compounded monthly. Assuming that the oven will be used for five years, should she purchase the oven or should she lease it? A) Lease, since the present value (PV) of the lease is $12,224 less than the cost of the oven. B) Lease, since the present value (PV) of the lease is $8,642 less than the cost of the oven. C) Lease, since the present value (PV) of the lease is $2,212 less than the cost of the oven. D) Buy, since the present value (PV) of the lease is $32,108 more than the cost of the oven.

D) Calculate PV lease payments =$212,108; subtract $180,000 to get $32,108

A $52,000 loan is taken out on a boat with the terms 3% APR for 36 months. How much are the monthly payments on this loan? A) $1663.45 B) $1814.67 C) $1965.89 D) $1512.22

D) Calculate the PMT when PV of ordinary annuity =$52,000, periodic interest = 3/12%, and number of periods = 36.

Five years ago you took out a 30-year mortgage with an APR of 6.20% for $206,000. If you were to refinance the mortgage today for 20 years at an APR of 3.95%, how much would you save in total interest expense? A) $200,503 B) $150,377 C) $50,126 D) $100,251

D) Current Mortgage Payment: P/Y =12,N =360, I/Y =6.20,PV = $206,000, Solve for PMT = 1261.69 Current Mortgage Balance: P/Y = 12, N = 300, I/Y = 6.20, PMT = 1261.69, Solve for PV = $192,159.69 Total of Remaining Payments on Current Mortgage = 300 × $1261.69 = $378,505.83 New Mortgage Payment: P/Y = 12, N = 240, I/Y = 3.95, PV = $192,159.69 , Solve for PMT = $1159.39 Total Payments on New Mortgage: 240 × $1159.39 = $278,254.41 Difference in Total of Payments = $378,505.83 - $278,254.41 = $100,251

Your firm needs to invest in a new delivery truck. The life expectancy of the delivery truck is five years. You can purchase a new delivery truck for an upfront cost of $350,000, or you can lease a truck from the manufacturer for five years for a monthly lease payment of $7000 (paid at the end of each month). Your firm can borrow at 9.00% APR with quarterly compounding. The effective annual rate on your firmʹs borrowings is closest to ________. A) 9.00% B) 7.45% C) 11.17% D) 9.31%

D) EAR = (1 + APR / m)m - 1 = (1 + 0.0900/4)4 - 1 = 0.09308 or 9.31%

A 12% APR with bi-monthly compounding is equivalent to an EAR of ________. A) 11.98% B) 12.50% C) 12.00% D) 12.62%

D) EAR = {(1 + 0.12) / 6}6 - 1 = 12.62%

Michael has a credit card debt of $75,000 that has a 12% APR, compounded monthly. The minimum monthly payment only requires him to pay the interest on his debt. He receives an offer for a credit card with an APR of 4% compounded monthly. If he rolls over his debt onto this card and makes the same monthly payment as before, how long will it take him to pay off his credit card debt? A) 112 months B) 113 months C) 120 months D) 122 months

D) The first step is to calculate the minimum monthly payment using the debt balance of $75,000 and 12% APR compounded monthly, which = $75,000 × 12% / 12 = $750. The second step is to use the same $750 as payment, and using a discount rate of 4%/12, calculate the number of months required to pay off the present value (PV) of $75,000, which = 122 months.

Term in years: 2 5 10 30 Rate: 2.25% 3.125% 3.5% 4.375% The table above shows the interest rates available from investing in risk-free U.S. Treasury securities with different investment terms. If an investment offers a risk-free cash flow of $100,000 in two yearsʹ time, what is the present value (PV) of that cash flow? A) $76,518 B) $114,777 C) $133,906 D) $95,647

D) Using FV =$100,000, find the present value (PV) at 2.25% for 2 years