finance and data bank
5.1 Interest Rate Quotes and Adjustments
2)
Which of the following equations is incorrect?
A)
 1= APR
B)
Equivalent nPeriod Discount Rate = (1 + r)n  1
C)
1 + EAR =
D)
Interest Rate per Compounding Period =
3)
The effective annual rate (EAR) for a loan with a stated APR of 8% compounded monthly is closest to:
A)
8.30%
B)
8.33%
C)
8.00%
D)
8.24%
4)
The effective annual rate (EAR) for a loan with a stated APR of 10% compounded quarterly is closest to:
A)
10.52%
B)
10.25%
C)
10.38%
D)
10.00%
5)
The effective annual rate (EAR) for a savings account with a stated APR of 4% compounded daily is closest to:
A)
4.00%
B)
4.10%
C)
4.08%
D)
4.06%
Use the table for the question(s) below.
Consider the following investment alternatives:
Investment 
Rate 
Compounding 
A 
6.25% 
Annual 
B 
6.10% 
Daily 
C 
6.125 
Quarterly 
D 
6.120 
Monthly 
6)
Which alternative offers you the highest effective rate of return?
A)
Investment A
B)
Investment B
C)
Investment C
D)
Investment D
l
You are purchasing a new home and need to borrow $250,000 from a mortgage lender. The mortgage lender quotes you a rate of 6.25% APR for a 30year fixed rate mortgage. The mortgage lender also tells you that if you are willing to pay 2 points, they can offer you a lower rate of 6.0% APR for a 30year 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 $5000 to cover points you are paying the lender.
17)
Assuming you don't pay the points and borrow from the mortgage lender at 6.25%, then your monthly mortgage payment (with payments made at the end of the month) will be closest to:
A)
$1570
B)
$1530
C)
$1540
D)
$1500
18)
Assuming you pay the points and borrow from the mortgage lender at 6.00%, then your monthly mortgage payment (with payments made at the end of the month) will be closest to:
A)
$1540
B)
$1530
C)
$1570
D)
$1500
Use the information for the question(s) below.
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 5.9% APR. You monthly payments are $617.16 and you have just made your 24th monthly payment on your SUV.
19)
The amount of your original loan is closest to:
A)
$37,000
B)
$32,000
C)
$20,300
D)
$31,250
20)
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)
$31,250
B)
20,300
C)
$19,200
D)
$32,000
Use the information for the question(s) below.
22)
You are in the process of purchasing a new automobile that will cost you $25,000. The dealership is offering you either a $1,000 rebate (applied toward the purchase price) or 3.9% financing for 60 months (with payments made at the end of the month). You have been preapproved for an auto loan through your local credit union at an interest rate of 7.5% for 60 months. Should you take the $2000 rebate and finance through your credit union or forgo the rebate and finance through the dealership at the lower 3.9% APR?
.
23)
You are purchasing a new home and need to borrow $325,000 from a mortgage lender. The mortgage lender quotes you a rate of 6. 5% APR for a 30year fixed rate mortgage (with payments made at the end of each month). The mortgage lender also tells you that if you are willing to pay 1 point, they can offer you a lower rate of 6.25% APR for a 30year 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 $3250 to cover points you are paying the lender. Assuming that you do not intend to prepay your mortgage (pay off your mortgage early),are you better off paying the 1 point and borrowing at 6.25% APR or just taking out the loan at 6.5% without any points?
Use the information for the question(s) below.
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 5.9% APR. You monthly payments are $617.16 and you have just made your 24th monthly payment on your SUV.
24)
Assuming that you have made all of the first 24 payments on time, then how much interest have you paid over the first two years of your loan?

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