Interest Rates Answers

Why is the Federal Funds Rate so influential on other interest rates?a.The Federal Funds Rate determines how much consumers can borrow per year. b.The Federal Funds Rate determines how many loans per year a bank can issue.c.The Federal Funds Rate is only important to heavy investors. d.The Federal Funds Rate determines at what interest rate banks borrow money.

Melanie is looking for a loan. She is willing to pay no more than an effective rate of 9.955% annually. Which, if any, of the following loans meet Melanie’s criteria? Loan A: 9.265% nominal rate, compounded weeklyLoan B: 9.442% nominal rate, compounded monthlyLoan C: 9.719% nominal rate, compounded quarterlya.B onlyb.A and Cc.A and Bd.None of these fit Melanie’s criteria.

Which factor or factors listed below are internal influences on a loan’s interest rate?I. current and prospective inflationII. collateral offered by the borrowerIII. the strength of the economya.I onlyb.I and IIIc.II onlyd.II and III

When calculating a loan’s effective interest rate, if the nominal rate is 8.5%, what value of i do you plug into your equation?a.8.5b.0.85c.0.085d.1.85

Why do interest rates on loans tend to be lower in a weak economy than in a strong one?a.A weak economy tends to have low inflation, so interest rates drop to match.b.Borrowers in a weak economy are less likely to default on their loans, so interest rates are correspondingly low.c.In a weak economy there is less demand for credit, so the price drops.d.The strength or weakness of an economy is determined by interest rates; low interest rates actually cause a weak economy.

Say you are considering two loans. Loan F has a nominal interest rate of 5.66%, compounded monthly. Loan G has a rate of 6.02%, compounded semiannually. Which loan will give the lower effective interest rate, and how much lower will it be?a.Loan G’s effective rate will be 0.091 percentage points lower than Loan F’s.b.Loan G’s effective rate will be 0.058 percentage points lower than Loan F’s.c.Loan F’s effective rate will be 0.302 percentage points lower than Loan G’s.d.Loan F’s effective rate will be 0.149 percentage points lower than Loan G’s.

When calculating the effective rate of a loan, which statement or statements must be true if n is greater than 1?I. The length of the loan is greater than a single year.II. The effective rate will exceed the nominal rate.III. The interest will be compounded monthly.a.II onlyb.II and IIIc.I and IIId.I, II, and III

When calculating a loan’s effective rate, if the interest compounds every two months, what value of n do you plug into your equation?a.2b.0.167c.6d.60

Jessica’s bank is offering her a loan with a stated rate of 4.90% interest. If the interest is compounded every two months, what will Jessica really pay for interest?a.4.90%b.5.00%c.5.01%d.4.96%

Anna’s bank gives her a loan with a stated interest rate of 10.22%. How much greater will Anna’s effective interest rate be if the interest is compounded daily, rather than compounded monthly?a.0.5389 percentage pointsb.0.1373 percentage pointsc.0.4926 percentage pointsd.0.0463 percentage points