Chapter 5: 1. Interest rates are quoted on a annual, semi-annual, quarterly, and monthly basis. Interest rates are reported as effective annual rates or annual percentage yield most commonly. Another type of interest rate is known as annual percentage rate. An example of this is Kim is taking out a loan on a house and the annual percentage rate is 4.2%. A different example would be Lisa is taking out a loan on a car and the annual percentage rate is 2.99%. A third example is Travis deposited money into his savings account accumulating interest at a rate of 2.8% semi-annually. 2. Computing loan payments and balances requires that the quoted rates match up with the number of periods. One example is buying something on a credit card. The annual percentage rate for the credit card company is 13.98%. In order to solve for how much interest you have accrued after 5 months. You could first divide the Apt by 12 months in order to convert it to a monthly percentage. Then you would pull up excel and use the payment function. You can also compute the balance of a loan by using excel and the function present value rather than the payment function. 3. Inflation affects our evaluation of interest rates that are given to us from loan agencies or by banks. A higher interest rate represents that the costs to the investment are worth more than the benefits. Higher interest rates are unattractive to those looking for loans. There are also interest rates that allow for money to be borrowed over a time frame with no risk involved. Bank’s interest rates often are based on the length of the loan or investment. Banks will make predictions about the future of the investment using different tools such as the yield curve. 4. The main link between a market’s interest rates and the opportunity cost of the capital is that the goal for any financial manager is to have or product as