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Tutorial 3 Questions

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38 views3 pages

Tutorial 3 Questions

Uploaded by

Thảo Ngân Nguyễn
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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FINM 2412 Financial Management for Business

Tutorial 3 Questions

Question 1
If you were offered a return of 12% EAR or 12% APR with monthly payments, which one
would you choose?

Question 2
Convert 10% APR with quarterly payments into its EAR.

Question 3
(a) Consider a $30,000 car loan with 60 equal monthly payments, computed using a
6.75% APR with monthly compounding. Work out the monthly payment (basically
the coupon of the annuity).
(b) After making 12 repayments on the loan above, use the present value formula to
work out the remaining balance of the loan.

Question 4
(a) If the yield curve is positively sloping, such that the yield to maturity of long dated
zero-coupon bonds are higher than the yield to maturity of short dated treasury bills,
what does this imply about investor expectations of future interest rates?
(b) If the yield curved inverted, what does this mean about the yield to maturity of short
maturity bonds vs. long maturity bonds? Furthermore, what does this mean about
the state of the economy?

Question 5
You buy an apartment in Brisbane for $1,200,000. 50% of this is funded by a 20 year
mortgage. The bank charges you 4% APR compounded monthly. You pay exactly the
monthly instalment suggested by the bank. After 5 years, you sell your apartment for
$1,400,000 and repay any outstanding debt you have with the bank. How much are you left
with?

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