4. You are considering refinancing your current mortgage and you are considering

Question

4. You are considering refinancing your current mortgage and you are considering a loan with a 7% APR that compounds weekly. What is the Effective Annual Rate (EAR) of this loan?

5. You purchased a stock six months ago for $50 and have since received two quarterly dividend payments of $3 each.  The stock currently sells for $56.  What is your holding period return on this stock?

6. You have a saving account that you were told has an effective annual return of 20% and compounds daily.  What is the Annual Percentage Rate you on this account?

7. An investor purchased a bond for $1,000, received $6 in interest, and then sold the bond for $977 after holding it for seven months. What is the holding period return?

8. The type of risk which CANNOT be eliminated through diversification is:

9.Which of the following would be considered a systematic risk?

10. The risk which a firm may not be able to meets its debt obligations is known as:

Explanation / Answer

1. EAR = (1+r/n)nt-1 = (1+7%/52)52 -1 = 7.25%
2. Holding Period return of Stock = (56 -50 + 2*3)/50 = 24%
3.EAR= (1+APR/365)365-1 = 20%
APR = ((1+20%)1/365-1)*365 = 18.24%

4. Holding Period return of Stock = (977 -1000 + 6)/1000 = -1.7%

maximum 4 parts can be solved .
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