Question 1

If the interest rate is positive,the future value of an interest bearing investment is always larger than the present value.

Accepted Answer

A) True 
 B)False

Question 2

As the interest rate rises,the present value of a given perpetual stream of income

Accepted Answer

A)  increases. 
B)  decreases. 
C)  does not change. 
D)  approaches infinity. 
A)  increases. 
B)  decreases. 
C)  does not change. 
D)  approaches infinity.

Question 3

Why do economists predict that investment increases when the real rate of interest falls?

Accepted Answer

When the interest rate falls,the present

Question 4

You sign a contract to pay $1000 next year for the refrigerator you bought today.The rate of inflation is 10% and the real interest rate is 7%.Alternatively,you could pay $875 today.What should you do to save the most money?

Accepted Answer

1000/[(1 + .1)∗ (1 + .07)] = $

Question 5

As in all other competitive markets price equals marginal cost in a market for a scarce,non-renewable resource that is traded in a competitive market.

Accepted Answer

A) True 
 B)False

Question 6

At age 40,Joe is considering quitting his job and going back for a college degree.He needs two more years full-time.Tuition is $10,000 per year.He earns $30,000 per year.A college degree would raise his annual income by $10,000 per year.He will retire at age 70.Which of the following makes it more likely that Joe will decide to go back to college full-time?

Accepted Answer

A)  The rate of interest increases. 
B)  The rate of interest decreases. 
C)  The government enacts mandatory retirement at age 60. 
D)  Tuition increases. 
A)  The rate of interest increases. 
B)  The rate of interest decreases. 
C)  The government enacts mandatory retirement at age 60. 
D)  Tuition increases.

Question 7

If the interest rate is 10%,then $1 today is worth how much one year from now?

Accepted Answer

A)  $1.10 
B)  $1.00 
C)  $0.91 
D)  $0.90 
A)  $1.10 
B)  $1.00 
C)  $0.91 
D)  $0.90

Question 8

If an individual wins a multimillion dollar lottery and chooses to receive annual payments equaling the total prize,this person has a

Accepted Answer

A)  relatively low discount rate. 
B)  relatively high discount rate. 
C)  discount rate of zero. 
D)  It is impossible to tell. 
A)  relatively low discount rate. 
B)  relatively high discount rate. 
C)  discount rate of zero. 
D)  It is impossible to tell.

Question 9

Which of the following is most likely to cause the savings supply curve in the market for loanable funds to shift leftward?

Accepted Answer

A)  Government borrows to finance a war. 
B)  All firms project higher future revenue streams for all of their projects. 
C)  All firms project lower future revenue streams for all of their projects. 
D)  Government institutes a high tax on savings. 
A)  Government borrows to finance a war. 
B)  All firms project higher future revenue streams for all of their projects. 
C)  All firms project lower future revenue streams for all of their projects. 
D)  Government institutes a high tax on savings.

Question 10

You invest an amount today for four years that pays 6% annually.The bank compounds annually.At the end of the four years you will have $150.What amount must you invest today?

Accepted Answer

A)  $148.81 
B)  $138.81 
C)  $128.81 
D)  $118.81 
A)  $148.81 
B)  $138.81 
C)  $128.81 
D)  $118.81

Question 11

Government policies that encourage savings

Accepted Answer

A)  reduce interest rates. 
B)  increase interest rates. 
C)  have no effect on interest rates. 
D)  lower the net present value of all investments. 
A)  reduce interest rates. 
B)  increase interest rates. 
C)  have no effect on interest rates. 
D)  lower the net present value of all investments.

Question 12

Interest rates are positive mainly because

Accepted Answer

A)  of inflation. 
B)  people tend to prefer the present to the future. 
C)  people tend to prefer the future to the present. 
D)  bankers are greedy. 
A)  of inflation. 
B)  people tend to prefer the present to the future. 
C)  people tend to prefer the future to the present. 
D)  bankers are greedy.

Question 13

A firm has to choose between projects X and Y.Project X's internal rate of return is positive.If the cash flow of project Y is discounted at project X's internal rate of return,this firm will

Accepted Answer

A)  choose project X if the net present value of project Y is positive. 
B)  choose project X if the net present value of project Y is negative. 
C)  choose project Y if the net present value of project Y is positive. 
D)  choose project X regardless of the net present value of project Y. 
A)  choose project X if the net present value of project Y is positive. 
B)  choose project X if the net present value of project Y is negative. 
C)  choose project Y if the net present value of project Y is positive. 
D)  choose project X regardless of the net present value of project Y.

Question 14

As the interest rate increases,the present value of a future payment

Accepted Answer

A)  increases. 
B)  decreases. 
C)  does not change. 
D)  approaches infinity. 
A)  increases. 
B)  decreases. 
C)  does not change. 
D)  approaches infinity.

Question 15

Assume a baseball player's development in the minor leagues yields -$250,000 per year for four years.If the player were to have a single big league season and be paid $350,000,how much revenue would the player need to generate to be considered a positive net present value project from the point of view of the team owner if the interest rate was 4%?

Accepted Answer

A)  $1.45 million 
B)  $2.5 million 
C)  $350,000 
D)  $250,000 
A)  $1.45 million 
B)  $2.5 million 
C)  $350,000 
D)  $250,000

Question 16

A state lottery has a Million Dollar Lottery game that pays $1,000 a week for life.Assuming a 6% nominal rate of interest and generously assuming an infinite lifetime,can this game be called a "Million Dollar Lottery"?

Accepted Answer

Assuming that the payments las

Question 17

If an asset has a present value of $50 and appreciates at an interest rate of 4%,what is the asset's future value in 47 compounding periods?

Accepted Answer

A)  Approximately $400 
B)  Approximately $316 
C)  Approximately $137 
D)  Approximately $1143 
A)  Approximately $400 
B)  Approximately $316 
C)  Approximately $137 
D)  Approximately $1143

Question 18

Suppose coal sells for $50 per ton and can be mined at a constant marginal cost of $20 per ton.Forecasters predict that the price of coal next year will be $55.If your marginal cost next year will still be $20 and the interest rate is 10%,do you sell coal today?

Accepted Answer

You are indifferent if coal pr

Question 19

If you place $100 in a bank account that pays 6% at the end of each year,and you leave your $100 and all your interest in the bank,how much will you have in the bank at the end of 7 years with annual compounding?

Accepted Answer

A)  (106)7 
B)  7 ∗ (106) 
C)  100 ∗ (1.60)7 
D)  100 ∗ (1.06)7 
A)  (106)7 
B)  7 ∗ (106) 
C)  100 ∗ (1.60)7 
D)  100 ∗ (1.06)7

Question 20

The nominal interest rate is 7% and the real interest rate is 2.75%.What is the inflation rate?

Accepted Answer

A)  3.75% 
B)  4.55% 
C)  4.25% 
D)  9.75% 
A)  3.75% 
B)  4.55% 
C)  4.25% 
D)  9.75%

If the interest rate is positive,the future value of an interest bearing investment is always larger than the present value.

As the interest rate rises,the present value of a given perpetual stream of income

Why do economists predict that investment increases when the real rate of interest falls?

You sign a contract to pay $1000 next year for the refrigerator you bought today.The rate of inflation is 10% and the real interest rate is 7%.Alternatively,you could pay $875 today.What should you do to save the most money?

As in all other competitive markets price equals marginal cost in a market for a scarce,non-renewable resource that is traded in a competitive market.

If the interest rate is 10%,then $1 today is worth how much one year from now?

If an individual wins a multimillion dollar lottery and chooses to receive annual payments equaling the total prize,this person has a

Which of the following is most likely to cause the savings supply curve in the market for loanable funds to shift leftward?

You invest an amount today for four years that pays 6% annually.The bank compounds annually.At the end of the four years you will have $150.What amount must you invest today?

Government policies that encourage savings

Interest rates are positive mainly because

A firm has to choose between projects X and Y.Project X's internal rate of return is positive.If the cash flow of project Y is discounted at project X's internal rate of return,this firm will

As the interest rate increases,the present value of a future payment

A state lottery has a Million Dollar Lottery game that pays $1,000 a week for life.Assuming a 6% nominal rate of interest and generously assuming an infinite lifetime,can this game be called a "Million Dollar Lottery"?

If an asset has a present value of $50 and appreciates at an interest rate of 4%,what is the asset's future value in 47 compounding periods?

Suppose coal sells for $50 per ton and can be mined at a constant marginal cost of $20 per ton.Forecasters predict that the price of coal next year will be $55.If your marginal cost next year will still be $20 and the interest rate is 10%,do you sell coal today?

If you place $100 in a bank account that pays 6% at the end of each year,and you leave your $100 and all your interest in the bank,how much will you have in the bank at the end of 7 years with annual compounding?

The nominal interest rate is 7% and the real interest rate is 2.75%.What is the inflation rate?

Introduction

Supply and Demand

Applying the Supply-And-Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Uncertainty

Externalities, Open-Access, and Public Goods

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 16: Interest Rates, Investments, and Capital Markets

If the interest rate is positive,the future value of an interest bearing investment is always larger than the present value.

As the interest rate rises,the present value of a given perpetual stream of income

Why do economists predict that investment increases when the real rate of interest falls?

You sign a contract to pay $1000 next year for the refrigerator you bought today.The rate of inflation is 10% and the real interest rate is 7%.Alternatively,you could pay $875 today.What should you do to save the most money?

As in all other competitive markets price equals marginal cost in a market for a scarce,non-renewable resource that is traded in a competitive market.

If the interest rate is 10%,then $1 today is worth how much one year from now?

If an individual wins a multimillion dollar lottery and chooses to receive annual payments equaling the total prize,this person has a

Which of the following is most likely to cause the savings supply curve in the market for loanable funds to shift leftward?

You invest an amount today for four years that pays 6% annually.The bank compounds annually.At the end of the four years you will have $150.What amount must you invest today?

Government policies that encourage savings

Interest rates are positive mainly because

A firm has to choose between projects X and Y.Project X's internal rate of return is positive.If the cash flow of project Y is discounted at project X's internal rate of return,this firm will

As the interest rate increases,the present value of a future payment

A state lottery has a Million Dollar Lottery game that pays $1,000 a week for life.Assuming a 6% nominal rate of interest and generously assuming an infinite lifetime,can this game be called a "Million Dollar Lottery"?

If an asset has a present value of $50 and appreciates at an interest rate of 4%,what is the asset's future value in 47 compounding periods?

Suppose coal sells for $50 per ton and can be mined at a constant marginal cost of $20 per ton.Forecasters predict that the price of coal next year will be $55.If your marginal cost next year will still be $20 and the interest rate is 10%,do you sell coal today?

If you place $100 in a bank account that pays 6% at the end of each year,and you leave your $100 and all your interest in the bank,how much will you have in the bank at the end of 7 years with annual compounding?

The nominal interest rate is 7% and the real interest rate is 2.75%.What is the inflation rate?

Introduction

Supply and Demand

Applying the Supply-And-Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Uncertainty

Externalities, Open-Access, and Public Goods

Asymmetric Information

Contracts and Moral Hazards

Filters