Question

1. APR

2. EAR

3. APR

4. APR

A. 7.00% B. 7.24% C. 7.49% D. 7.95%

Question 8. You would like to buy an apartment in five years, and you are starting to save to finance the down payment. You already have €12,000 on a savings account in which you are planning to make additional annual deposits of €7,500 during the next five years (first deposit in t=1). If the savings account pays an annual interest rate of 4%, what will its balance be after you make the last deposit in t=5?

A. €50,348.95 B. €52,622.42 C. €55,222.25 D. €58,956.40

Question 9. A company wants to choose between project A and project B which are mutually exclusive. The expected cash flows are given in the table below. The company has estimated the IRRs of project A, project B and the difference between B and A. Please, help the company decide at what ranges of opportunity cost of capital (r) should it choose project B. (Hint: Draw the NPV project graph, or NPV profile, of the projects.)

Which one of the following interest-rate conditions are more favorable to a borrower?

= 12.0% with semiannual compounding = 12.0%

= 11.7% with quarterly compounding = 11.5% with monthly compounding

Answer 1

Question 8.

Given,

Current balance = 12000

Annual deposits (A) = 7500

Interest rate (r) = 4% or 0.04

No. of years (n) = 5

Solution :-