1. Luke borrows $750,000 from ANZ to set up a medical practice. He agrees to pay a fixed interest rate of 12% per annum compounding monthly and to repay by equal monthly instalments over 20 years. Calculate the monthly repayment and the remaining loan after making 24 monthly repayments.
a. The monthly repayment is $107,103.02 and the outstanding is $776,461.59 after making 24 monthly repayments.
b. None of the other answers are true.
c. The monthly repayment is $8,258.15 and the outstanding is $729,550.18 after making 24 monthly repayments.
d. The monthly repayment is $8,258.15 and the outstanding is $776,461.59 after making 24 monthly repayments.
2. What is the effective annual interest rate corresponding to a nominal interest rate of 8% per annum, compounding quarterly?
a. None of the other answers are true.
b. The effective annual interest rate is 8%.
c. The effective annual interest rate is 7.5%.
d. The effective annual interest rate is 8.24%.
3. The Arrow Company Ltd issued a debenture 10 years ago with a coupon rate of 6% (annual coupon) that will matures in 5 years. The current market price of the debenture is $98.5 and the par value is $100. What is the yield on Arrow Company debentures?
a. The yield on Arrow Company debentures is 6.36% per annum.
b. The yield on Arrow Company debentures is 6.46% per annum.
c. The yield on Arrow Company debentures is 6% per annum.
d. None of the other answers are true.
5. Your Aunt Terry has promised to pay you $100 in year 1, $200 in year 2, $300 in year 3, $400 in year 4 and $500 in year 5. Assume that the interest rate is 5% per annum, calculate the present value of Aunt Terry’s promised series of payments over the next 5 years.
a. The present value of Aunt Terry’s promised series of payments is $1,256.64.
b. The present value of Aunt Terry’s promised series of payments is $1,500.
c. The present value of Aunt Terry’s promised series of payments is $1,319.47.
d. None of the other answers are true.