Question 1

Which of the following is necessarily true of coupon bonds?

Accepted Answer

A)  The price exceeds the face value. 
B)  The coupon rate exceeds the interest rate. 
C)  The price is equal to the coupon payments. 
D)  The price is the sum of the present value of coupon payments and the face value. 
A)  The price exceeds the face value. 
B)  The coupon rate exceeds the interest rate. 
C)  The price is equal to the coupon payments. 
D)  The price is the sum of the present value of coupon payments and the face value. D

Question 2

The price of a coupon bond is determined by taking the present value of:

Accepted Answer

A)  the bond's final payment and subtracting the coupon payments. 
B)  the coupon payments and adding this to the face value. 
C)  the bond's final payment. 
D)  all of the bond's payments. 
A)  the bond's final payment and subtracting the coupon payments. 
B)  the coupon payments and adding this to the face value. 
C)  the bond's final payment. 
D)  all of the bond's payments. D

Question 3

A monthly interest rate of 1% is a compounded annual rate of :

Accepted Answer

A)  12.68% 
B)  10.00% 
C)  14.11% 
D)  6.00% 
A)  12.68% 
B)  10.00% 
C)  14.11% 
D)  6.00% A

Question 4

A credit card that charges a monthly interest rate of 1.5% has an effective annual interest rate of:

Accepted Answer

A)  18.0% 
B)  19.6% 
C)  15.0% 
D)  17.50% 
A)  18.0% 
B)  19.6% 
C)  15.0% 
D)  17.50%

Question 5

The internal rate of return of an investment is:

Accepted Answer

A)  the same as return on investment. 
B)  zero when the present value of an investment equals its cost. 
C)  the interest rate that equates the present value of an investment with its cost. 
D)  equal to the market rate of interest when an investment is made. 
A)  the same as return on investment. 
B)  zero when the present value of an investment equals its cost. 
C)  the interest rate that equates the present value of an investment with its cost. 
D)  equal to the market rate of interest when an investment is made.

Question 6

An investment has grown from $100.00 to $130.00 or by 30% over four years. What annual increase gives a 30% increase over four years?

Accepted Answer

A)  7.50% 
B)  6.30% 
C)  6.78% 
D)  7.24% 
A)  7.50% 
B)  6.30% 
C)  6.78% 
D)  7.24%

Question 7

You are considering purchasing a home. You find one that you like but you realize that you will need to obtain a mortgage for $100,000. The mortgage company presents you with two options: a 15-year mortgage at a 6.0% annual rate and a 30-year mortgage at a 6.5% annual rate. What will be the fixed annual payment for each mortgage?

Accepted Answer

Using a financial calculator or a spread

Question 8

An investor deposits $400 into a bank account that earns an annual interest rate of 8%. Based on this information, how much interest will he earn during the second year alone?

Accepted Answer

A)  $25.60 
B)  $32 
C)  $34.56 
D)  $64 
A)  $25.60 
B)  $32 
C)  $34.56 
D)  $64

Question 9

An investment grows from $100.00 to $150.00 or 50% over five years. What annual increase gives a 50% increase over five years?

Accepted Answer

A)  12.00% 
B)  10.00% 
C)  9.25% 
D)  8.45% 
A)  12.00% 
B)  10.00% 
C)  9.25% 
D)  8.45%

Question 10

A promise of a $100 payment to be received one year from today is:

Accepted Answer

A)  more valuable than receiving the payment today. 
B)  less valuable than receiving the payment two years from now. 
C)  equally valuable as a payment received today if the interest rate is zero. 
D)  not enough information is provided to answer the question. 
A)  more valuable than receiving the payment today. 
B)  less valuable than receiving the payment two years from now. 
C)  equally valuable as a payment received today if the interest rate is zero. 
D)  not enough information is provided to answer the question.

Question 11

A mortgage, where the monthly payments are the same for the duration of the loan, is an example of a(n):

Accepted Answer

A)  variable payment loan. 
B)  installment loan. 
C)  fixed payment loan. 
D)  equity security. 
A)  variable payment loan. 
B)  installment loan. 
C)  fixed payment loan. 
D)  equity security.

Question 12

A saver knows that if she put $95 in the bank today she will receive $100 from the bank one year from now, including the interest she will earn. What is the interest rate she is earning?

Accepted Answer

A)  5.10% 
B)  6.00% 
C)  5.52% 
D)  5.26% 
A)  5.10% 
B)  6.00% 
C)  5.52% 
D)  5.26%

Question 13

Farou invests $2,000 at 8% interest. About how long will it take for Farou to double his investment (e.g., to have $4,000)?

Accepted Answer

A)  4 years 
B)  5 years 
C)  8 years 
D)  9 years 
A)  4 years 
B)  5 years 
C)  8 years 
D)  9 years

Question 14

A monthly growth rate of 0.5% is an annual growth rate of:

Accepted Answer

A)  6.00% 
B)  5.00% 
C)  6.17% 
D)  6.50% 
A)  6.00% 
B)  5.00% 
C)  6.17% 
D)  6.50%

Question 15

If the internal rate of return from an investment is more than the opportunity cost of funds the firm should:

Accepted Answer

A)  make the investment. 
B)  not make the investment. 
C)  only make the investment using retained earnings. 
D)  only make part of the investment and wait to see if interest rates decrease. 
A)  make the investment. 
B)  not make the investment. 
C)  only make the investment using retained earnings. 
D)  only make part of the investment and wait to see if interest rates decrease.

Question 16

According to the rule of 72:

Accepted Answer

A)  any amount should double in value in 72 months if invested at 10%. 
B)  72/interest rate is the number of years approximately it will take for an amount to double. 
C)  72 × interest rate is the number of years it will take for an amount to double. 
D)  the interest rate divided by the number of years invested will always equal 72%. 
A)  any amount should double in value in 72 months if invested at 10%. 
B)  72/interest rate is the number of years approximately it will take for an amount to double. 
C)  72 × interest rate is the number of years it will take for an amount to double. 
D)  the interest rate divided by the number of years invested will always equal 72%.

Question 17

One hundred basis points could be expressed as:

Accepted Answer

A)  0.01% 
B)  1.00% 
C)  100.0% 
D)  0.10% 
A)  0.01% 
B)  1.00% 
C)  100.0% 
D)  0.10%

Question 18

In the data, we observe that countries with high inflation rates tend to have high nominal interest rates. What does this imply, if anything, about real interest rates in countries with very high inflation rates?

Accepted Answer

The higher nominal interest ra

Question 19

What is the future value of $1,000 after six months earning 12% annually?

Accepted Answer

A)  $1,050.00 
B)  $1,060.00 
C)  $1,120.00 
D)  $1,058.30 
A)  $1,050.00 
B)  $1,060.00 
C)  $1,120.00 
D)  $1,058.30

Question 20

An individual is currently 30 years old, wants to work until the age of 65 and plans on dying at the age of 85. How much will the individual need to have saved by the time he or she is
65 if he or she plans on spending $40,000 per year while retired? You can assume the individual can earn an interest rate of 5.0% and the $40,000 is in addition to any Social Security that may be received.

Accepted Answer

We can use a financial calculator to det

Exam 4: Future Value, Present Value and Interest Rates

Which of the following is necessarily true of coupon bonds?

The price of a coupon bond is determined by taking the present value of:

A monthly interest rate of 1% is a compounded annual rate of :

A credit card that charges a monthly interest rate of 1.5% has an effective annual interest rate of:

The internal rate of return of an investment is:

An investment has grown from $100.00 to $130.00 or by 30% over four years. What annual increase gives a 30% increase over four years?

An investor deposits $400 into a bank account that earns an annual interest rate of 8%. Based on this information, how much interest will he earn during the second year alone?

An investment grows from $100.00 to $150.00 or 50% over five years. What annual increase gives a 50% increase over five years?

A promise of a $100 payment to be received one year from today is:

A mortgage, where the monthly payments are the same for the duration of the loan, is an example of a(n):

A saver knows that if she put $95 in the bank today she will receive $100 from the bank one year from now, including the interest she will earn. What is the interest rate she is earning?

Farou invests $2,000 at 8% interest. About how long will it take for Farou to double his investment (e.g., to have $4,000)?

A monthly growth rate of 0.5% is an annual growth rate of:

If the internal rate of return from an investment is more than the opportunity cost of funds the firm should:

According to the rule of 72:

One hundred basis points could be expressed as:

In the data, we observe that countries with high inflation rates tend to have high nominal interest rates. What does this imply, if anything, about real interest rates in countries with very high inflation rates?

What is the future value of $1,000 after six months earning 12% annually?

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange Rate Policy and the Central Bank

Money Growth, Money Demand and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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