If the risk-free rate of interest (rf) is 3.5%, then you should be indifferent b
ID: 2383878 • Letter: I
Question
If the risk-free rate of interest (rf) is 3.5%, then you should be indifferent between receiving $1000 in one-year or
a. $1,000.00 today.
b. $966.18 today.
c. $965.00 today.
d. $1,035 today.
The effective annual rate for a certificate of deposit that pays 3.9% APR compounded monthly is closest to:
a. 3.90%
b. 3.97%
c. 3.83
d. 4.04%
If the risk-free rate of interest (rf) is 6%, then you should be indifferent between receiving $250 in one year or
a. $235.85 today.
b. $250.00 today.
c. $265.00 today.
d. None of the above
Wesley Mouch's auto loan requires monthly payments and has an effective annual rate of 6.43%. The APR on this auto loan is closest to:
a. 6.50%
b. 6.00%
c. 6.25%
d. 6.62%
Explanation / Answer
1 )correct option is "B" - $ 966.18 today
Reason - Present value of $1000 today = 1000 / (1.035 )
= $ 966.18
2)correct option is "B" - 3.97%
Reason :
EAR = [(1 + i/n)^n ] -1
= [(1+.039/12)^12]-1
= [(1+.00325)^12]-1
= [(1.00325)^12]-1
=1.03970-1
= .0397 or 3.97%
3)correct option is "A" - $235.85 today
Reaso- 250/(1.06) = 235.85
4)APR= n*[(EAR +1)^(1/N)- 1 ]
=12 [(.0643 + 1)^(1/12) -1]
= 12[(1.0643)^.08333 -1 ]
=12 [1.00521 -1]
= 12 * .00521
= .06252 or 6.25 %
Correct answer is "C" - 6.25%
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.