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