MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) 1) 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) 14.46% C) 8.68% D) 7.23% 2) 2) A bank pays interest semiannually with an EAR of 13%. What is the periodic interest rate applicable semiannually? A) 7.56% B) 5.04% C) 6.30% D) 12.60% 3) 3) 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 $174 more than buying. B) Leasing costs $145 more than buying. C) Leasing costs $289 more than buying. D) Leasing costs $116 more than buying. 4) 4) 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) $392,957 C) $471,549 D) $432,000 5) 5) 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) $86,899 B) $72,416 C) $57,933 D) $101,382 6) 6) 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) $31,195 B) $43,673 C) $37,434 D) $24,956 7) 7) 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) 9.4% B) 13.2% C) 11.3% D) 15.1% 8) 8) A $1000 bond with a coupon rate of 6.2% paid semiannually has eight years to maturity and a yield to maturity of 8.3%. If interest rates rise and the yield to maturity increases to 8.6%, what will happen to the price of the bond? A) The price of the bond will rise by $15.78. B) The price of the bond will fall by $18.93. C) The price of the bond will fall by $15.78. D) The price of the bond will not change. 9) 9) A stock is bought for $23.00 and sold for $27.00 one year later, immediately after it has paid a dividend of $1.50. What is the capital gain rate for this transaction? A) 8.70% B) 17.39% C) 13.91% D) 3.48% 10) 10) Valorous Corporation will pay a dividend of $1.75 per share at this year's end and a dividend of $2.35 per share at the end of next year. It is expected that the price of Valorous' stock will be $41 per share after two years. If Valorous has an equity cost of capital of 9%, what is the maximum price that a prudent investor would be willing to pay for a share of Valorous stock today? A) $39.99 B) $32.38 C) $36.19 D) $38.09 11) 11) Rylan Industries is expected to pay a dividend of $5.70 year for the next four years. If the current price of Rylan stock is $31.27, and Rylan's equity cost of capital is 12%, what price would you expect Rylan's stock to sell for at the end of the four years? A) $17.57 B) $39.53 C) $61.49 D) $21.96
