Fin 534 Quiz 3
Question 1
.
2 out of 2 points
Your bank account pays a 6% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT?
Answer
Selected Answer:
The periodic rate of interest is 1.5% and the effective rate of interest is greater than 6%.
Correct Answer:
The periodic rate of interest is 1.5% and the effective rate of interest is greater than 6%.
.
Question 2
.
2 out of 2 points
Which of the following statements regarding a 15-year (180-month) $125,000, fixed-rate mortgage is CORRECT? (Ignore taxes and transactions costs.)
Answer
Selected Answer:
The outstanding balance declines at a faster rate in the later years of the loan’s life.
Correct Answer:
The outstanding balance declines at a faster rate in the later years of the loan’s life.
.
Question 3
.
2 out of 2 points
You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would lower the calculated value of the investment?
Answer
Selected Answer:
The discount rate increases.
Correct Answer:
The discount rate increases.
.
Question 4
.
0 out of 2 points
Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant?
Answer
Selected Answer:
If an investment pays 10% interest, compounded annually, its effective annual rate will be less than 10%.
Correct Answer:
A bank loan's nominal interest rate will always be equal to or less than its effective annual rate.
.
Question 5
.
0 out of 2 points
Which of the following statements is CORRECT?
Answer
Selected Answer:
If you solve for I and get a negative number, then you must have made a mistake.
Correct Answer:
If CF0
is positive and all the other CFs are negative, then you can still solve for I.
.
Question 6
.
2 out of 2 points
Which of the following statements is CORRECT?
Answer
Selected Answer:
Time lines can be constructed
.
2 out of 2 points
Your bank account pays a 6% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT?
Answer
Selected Answer:
The periodic rate of interest is 1.5% and the effective rate of interest is greater than 6%.
Correct Answer:
The periodic rate of interest is 1.5% and the effective rate of interest is greater than 6%.
.
Question 2
.
2 out of 2 points
Which of the following statements regarding a 15-year (180-month) $125,000, fixed-rate mortgage is CORRECT? (Ignore taxes and transactions costs.)
Answer
Selected Answer:
The outstanding balance declines at a faster rate in the later years of the loan’s life.
Correct Answer:
The outstanding balance declines at a faster rate in the later years of the loan’s life.
.
Question 3
.
2 out of 2 points
You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would lower the calculated value of the investment?
Answer
Selected Answer:
The discount rate increases.
Correct Answer:
The discount rate increases.
.
Question 4
.
0 out of 2 points
Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant?
Answer
Selected Answer:
If an investment pays 10% interest, compounded annually, its effective annual rate will be less than 10%.
Correct Answer:
A bank loan's nominal interest rate will always be equal to or less than its effective annual rate.
.
Question 5
.
0 out of 2 points
Which of the following statements is CORRECT?
Answer
Selected Answer:
If you solve for I and get a negative number, then you must have made a mistake.
Correct Answer:
If CF0
is positive and all the other CFs are negative, then you can still solve for I.
.
Question 6
.
2 out of 2 points
Which of the following statements is CORRECT?
Answer
Selected Answer:
Time lines can be constructed