# Accounting

You buy a house worth \$350,000 with 20% down payment and a 30-year mortgage on the remaining value. If your monthly payment is \$1,500, what is the annual percentage rate (APR) for the mortgage?

a. 2.82%

b. 4.98%

c. 6.12%

d. 5.10%

You buy a house worth \$350,000 with 20% down payment and a 30-year mortgage on the remaining value. If your monthly payment is \$1,500, what is the effective annual rate (EAR) for the mortgage?

a. 6.12%

b. 5.10%

c. 4.98%

d. 2.82%

You borrow \$350,000 at 8 percent compounded monthly. How many years will it take to pay back the loan if the monthly payment is \$2,960?

a. 10

b. 19.5

c. 156

d. 233.6

Note: Use this information for next two questions.

Ms. Patricia Sullivan plans to create a fund from her lottery winnings to meet three objectives. First, she wants to create a fund so that her mother can withdraw \$20,000 per month for the remainder of her expected life of 20 years. Second, she wants to pay the down payment for her brother to buy a house upon graduation from college four years from now. She expects that he will need \$100,000 for down

payment at that time. Finally, she wants to retire after 15 years and be able to withdraw \$30,000 per month starting a month from her retirement. She expects to live for 30 years after retirement. All monies earn 8 percent compounded monthly and all cash flows occur at the end of the relevant period.

How much money does she need to invest today to meet her first objective?

a. \$3.7 million

b. \$2.4 million

c. \$4.5 million

d. \$3.2 million

How much money does she need to invest today to meet all three objectives?

a. \$2.4 million

b. \$3.2 million

c. \$4.5 million

d. \$3.7 million

You plan to purchase a car. The dealer is offering special financing at an annual percentage rate (APR) of 8 percent for 100 percent of the car value. The inflation premium is 3.5 percent. If the pure rate in the market is 3 percent, what is the risk premium using the multiplicative form?

a. 4.72%

b. 2.69%

c. 7.48%

d. 1.31%

e. 6.24%

The real rate is 4.2 percent and the nominal APR is 7 percent. What is the expected inflation premium? Use exact formulation.

a. 7.48%

b. 6.24%

c. 2.69%

d. 1.31%

e. 4.72%

The pure rate of interest is 2.5 percent and the inflation premium is 5 percent. If you require a risk premium of 3.5 percent, what is the nominal APR rate? Use exact formulation.

a. 11.00%

b. 8.75%

c. 11.39%

d. 6.09%

e. 6.00%

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