Question 1

Calculate the EAR of 14% compounded quarterly.

Accepted Answer

The answer of Calculate the EAR of 14% compounded quarterly.
...

Question 2

The Robertson Firm is considering a project which costs $123,900 to undertake. The project will yield cash ﬂows of $4,894.35 monthly for 30 months. What is the rate of return on this project?

Accepted Answer

To find the rate of return we need to calculate the internal rate of return (IRR) of the project's cash flows. Using a financial calculator or Excel, we find that the IRR is approximately 13.59%. Therefore, the best choice is C.

Question 3

How many $1000 annual payments will it take to pay off a $10,000 loan if interest is 5.37% compounded annually?

Accepted Answer

The answer of How many $1000 annual payments will it...

Question 4

What is the effective annual rate of 12% compounded continuously?

Accepted Answer

The answer of What is the effective annual rate of...

Question 5

Calculate the EAR of 12% compounded monthly.

Accepted Answer

The answer of Calculate the EAR of 12% compounded monthly.
...

Question 6

A credit card company charges you an interest rate of 1.25% monthly. The annual percentage rate is ____ and the effective annual rate is _______.

Accepted Answer

To find the annual percentage rate, we multiply the monthly interest rate by the number of months in a year: 1.25% x 12 = 15%. However, because interest is compounded monthly, we need to use the formula for effective annual rate to find the true annual cost of borrowing. The effective annual rate is (1 + 0.0125)^12 - 1 = 0.1608, or 16.08%. Therefore, choice D is the correct answer as it represents the annual percentage rate of 15.00% and the effective annual rate of 16.08%.

Question 7

Your local bank just loaned you $1,501. This amount is net of a 10% discount on the loan proceeds, which serves as interest on the loan. You are to repay the loan in one year. What is the effective rate
At which you borrowed?

Accepted Answer

The loan amount is $1,501, which is 90% of the principal (since 10% is the discount). The principal is $1,501 / 0.9 = $1,668.89. The interest is $1,668.89 - $1,501 = $167.89. The effective interest rate is $167.89 / $1,501 = 11.11%.

Question 8

What is the effective annual rate of 12% compounded monthly?

Accepted Answer

The answer of What is the effective annual rate of...

Question 9

Susan has been investing $160,000 a year for the past 9 years into Sunshine in a Can, Inc. Today, as the sole shareholder, she sold Sunshine in a Can, Inc. for $2.6 million. What is her rate of return
On this investment?

Accepted Answer

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Question 10

At the end of each year for the next 10 years you will receive cash ﬂows of $51. The initial investment is $321. What rate of return are you expecting from this investment?

Accepted Answer

The correct answer is A because the rate of return is 9.44%.

Question 11

If you initially deposit $10,000 and contribute $1,000 per month for ﬁve years to a plan in order to accumulate $100,000, what rate of return will be required to make this happen?

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Question 12

What is the effective annual rate of 12% compounded semi-annually?

Accepted Answer

The effective annual rate (EAR) of 12% compounded semi-annually can be calculated using the formula EAR = (1 + (r/n))^n - 1, where r is the nominal annual interest rate and n is the number of compounding periods per year.

Plugging in the values, we get: EAR = (1 + (0.12/2))^2 - 1 = 0.1236 or 12.36%.

Therefore, the best choice is C.

Question 13

What is the annual percentage rate on a loan with a stated rate of 3% per quarter?

Accepted Answer

To convert quarterly rate to annual percentage rate (APR), we use the following formula:
APR = (1 + quarterly rate)^4 - 1
Here, quarterly rate = 3%
So, APR = (1 + 0.03)^4 - 1 = 0.1255 or 12.55%
Therefore, the correct answer is (C) 12.00% (closest choice to the calculated APR).

Question 14

What is the effective annual rate of 11.25% compounded continuously?

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Question 15

Your mother helped you start saving $10 a month beginning on your 5th birthday, which is on May 1st. She always made you make your deposit on the ﬁrst day of each month just to "start the month
Out right". Today, you turn 21 and have $6,984 in your account. What is the rate of return on your
Savings?

Accepted Answer

The rate of return can be calculated using the future value of an annuity formula. Given the monthly deposits and the total amount saved, the rate of return is approximately 13.75%.

Question 16

Your neighbour makes you the following offer. He would like to borrow $10,000 today. He will repay the $10,000 by making yearly payments with the ﬁrst payment being for $1,000 at the end of this
Year. The payments will grow by 10% every year thereafter. If the appropriate discount rate is 12%,
How long will it take for your neighbour to repay the loan?

Accepted Answer

The present value of the payments is equal to the amount of the loan. The present value of the payments can be calculated using the formula for the present value of an annuity:PV = PMT * [1 - (1 + r)^-n] / rwhere:PV is the present value of the paymentsPMT is the amount of each paymentr is the discount raten is the number of paymentsIn this case, the amount of each payment is $1,000, the discount rate is 12%, and the number of payments is unknown. We can solve for the number of payments by setting the present value of the payments equal to the amount of the loan:$10,000 = $1,000 * [1 - (1 + 0.12)^-n] / 0.12Solving for n, we get:n = 12.38 yearsTherefore, it will take the neighbor 12.38 years to repay the loan.

Question 17

You borrowed $1,500 at 6% compounded annually. Your payments are $90 at the end of each year. How many years will you make payments on the loan?

Accepted Answer

The answer of You borrowed $1,500 at 6% compounded annually....

Question 18

Calculate the EAR of 10% compounded semi-annually.

Accepted Answer

EAR = (1 + r/n)^n - 1
where r is the nominal annual interest rate, and n is the number of compounding periods per year.

In this case, r = 10% and n = 2 (since interest is compounded semi-annually).
EAR = (1 + 0.10/2)^2 - 1
= 1.1025 - 1
= 0.1025
= 10.25%

Therefore, the best choice is A) 10.25%.

Question 19

A 13% APR compounded continuously is equal to an effective rate of:

Accepted Answer

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Question 20

Calculate the EAR of 9% compounded quarterly.

Accepted Answer

The formula for EAR (Effective Annual Rate) is:

EAR = (1 + (APR / n))^n - 1

Where:
APR = Annual Percentage Rate
n = number of times compounded in a year

In this case, APR = 9% and n = 4 (compounded quarterly)

So plugging in the values, we get:

EAR = (1 + (0.09 / 4))^4 - 1
EAR = 0.093118 or 9.31%

Therefore, the correct choice is A.

Quiz 6: Discounted Cash Flow Valuation

Calculate the EAR of 14% compounded quarterly.

The Robertson Firm is considering a project which costs $123,900 to undertake. The project will yield cash ﬂows of $4,894.35 monthly for 30 months. What is the rate of return on this project?

How many $1000 annual payments will it take to pay off a $10,000 loan if interest is 5.37% compounded annually?

What is the effective annual rate of 12% compounded continuously?

Calculate the EAR of 12% compounded monthly.

A credit card company charges you an interest rate of 1.25% monthly. The annual percentage rate is and the effective annual rate is ___.

Your local bank just loaned you $1,501. This amount is net of a 10% discount on the loan proceeds, which serves as interest on the loan. You are to repay the loan in one year. What is the effective rate At which you borrowed?

What is the effective annual rate of 12% compounded monthly?

Susan has been investing $160,000 a year for the past 9 years into Sunshine in a Can, Inc. Today, as the sole shareholder, she sold Sunshine in a Can, Inc. for $2.6 million. What is her rate of return On this investment?

At the end of each year for the next 10 years you will receive cash ﬂows of $51. The initial investment is $321. What rate of return are you expecting from this investment?

If you initially deposit $10,000 and contribute $1,000 per month for ﬁve years to a plan in order to accumulate $100,000, what rate of return will be required to make this happen?

What is the effective annual rate of 12% compounded semi-annually?

What is the annual percentage rate on a loan with a stated rate of 3% per quarter?

What is the effective annual rate of 11.25% compounded continuously?

You borrowed $1,500 at 6% compounded annually. Your payments are $90 at the end of each year. How many years will you make payments on the loan?

Calculate the EAR of 10% compounded semi-annually.

A 13% APR compounded continuously is equal to an effective rate of:

Calculate the EAR of 9% compounded quarterly.