Question 1
Which of the projects A and B below would be best according to (a) the NPV criterion, (b) the IRR criterion, if the market rate of interest is 6% per annum?
Outlay now - £90,000 (Project A) - £30,000 (Project B)
Return at end of Year 1 - £100,000 (Project A) - £0 (Project B)
Return at end of Year 2 - £0 (Project A) - £38,000 (Project B)
Question 2
(a) What is the APR if the monthly rate of interest a credit card company charges on outstanding balances is 1.85%?
(b) If a "Pay Day Loan" company charges customers 50p a day for every £100 borrowed, what is the APR they are charging?
(c) What would be the monthly mortgage payments on a £225,000 loan borrowed over 25 years at an APR of 5%?
(d) If a customer can only afford to repay £875 a month, what is the maximum loan they could get from a Building Society that charges 5% APR for mortgage loans?