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You have found three investment choices for a one-year deposit: 11.1 %APR compounded monthly, 11.1 % APR compounded annually, and 10.4 % APR compounded daily.
You have found three investment choices for a one-year deposit:
11.1 %APR compounded monthly,
11.1 %
APR compounded annually, and
10.4 %
APR compounded daily. Compute the EAR for each investment choice. (Assume that there are 365 days in the year.) (Note: Be careful not to round any intermediate steps less than six decimal places.)
The EAR for the first investment choice is
%.
(Round to three decimal places.)
The EAR for the second investment choice is
%.
(Round to three decimal places.)
The EAR for the third investment choice is
%.
(Round to three decimal places.)
What is the shape of the yield curve given in the following term structure? What expectations are investors likely to have about future interest rates?
Term
1 year
2 years
3 years
5 years
7 years
10 years
20 years
Rate (EAR, %)
2.012.01
2.382.38
2.752.75
3.313.31
3.773.77
4.154.15
4.954.95
What is the shape of the yield curve given the term structure?(Select the best choice below.)
A.
The yield curve is a flat yield curve.
B.
The yield curve is an inverted yield curve (decreasing).
C.
The yield curve is a normal yield curve (increasing).
D.
It is hard to tell because we are not given an EAR for every year.
What expectations are investors likely to have about future interest rates?(Select the best choice below.)
A.
Interest rates will likely stay the same in the future.
B.
The yield curve provides no clues as to future interest rate levels.
C.
Interest rates might rise in the future.
D.
Interest rates might decrease in the future.
You make monthly payments on your car loan. It has a quoted APR of
6.7 %
(monthly compounding). What percentage of the outstanding principal do you pay in interest each month? (Note: Be careful not to round any intermediate steps less than six decimal places.)
The percentage of the outstanding principal you pay in interest each month is
%.
(Round to six decimal places.)
You are considering two ways of financing a spring break vacation. You could put it on your credit card, at
17%
APR, compounded monthly, or borrow the money from your parents, who want an interest payment of
6%
every six months. Which is the lower rate?(Note: Be careful not to round any intermediate steps less than six decimal places.)
The effective annual rate for your credit card is
%.
(Round to two decimal places.)
The effective annual rate for the loan from your parents is
%.
(Round to two decimal places.)
The option with the lower effective annual rate is
the loan from your parents
your credit card
.
(Select from drop-down menu.)
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