Question 1

The Net Present Value approach to investment results in an investment being undertaken only if

Accepted Answer

A)  its net present value is positive. 
B)  its net present value is zero. 
C)  it has positive cash flow. 
D)  its internal rate of return equals the rate of interest. 
A)  its net present value is positive. 
B)  its net present value is zero. 
C)  it has positive cash flow. 
D)  its internal rate of return equals the rate of interest.

Question 2

Suppose $100 is deposited in a bank account paying 5% compounded annually.If the interest earned is X after 5 years,then the interest earned will be 2X after 10 years.

Accepted Answer

A) True 
 B)False

Question 3

Today John says: "I will start working out tomorrow." Yet,as tomorrow arrives he doesn't.This is an example of

Accepted Answer

A)  time inconsistent preferences. 
B)  time consistent preferences. 
C)  exponential discounting. 
D)  future-biased preferences. 
A)  time inconsistent preferences. 
B)  time consistent preferences. 
C)  exponential discounting. 
D)  future-biased preferences.

Question 4

Investment demand is downward sloping because as the interest rate decreases,

Accepted Answer

A)  each project's internal rate of return decreases. 
B)  each project's internal rate of return increases. 
C)  more projects will have an internal rate of return that exceeds the interest rate. 
D)  more projects will have an internal rate of return that is less than the interest rate. 
A)  each project's internal rate of return decreases. 
B)  each project's internal rate of return increases. 
C)  more projects will have an internal rate of return that exceeds the interest rate. 
D)  more projects will have an internal rate of return that is less than the interest rate.

Question 5

Which of the following is an example of an exhaustible resource?

Accepted Answer

A)  silver 
B)  soybeans 
C)  pork belly 
D)  pound cake 
A)  silver 
B)  soybeans 
C)  pork belly 
D)  pound cake

Question 6

An individual who wants to stop smoking but chooses not to

Accepted Answer

A)  reflects future bias. 
B)  reflects present bias. 
C)  reflects irrationality. 
D)  reflects uncontrollable addiction. 
A)  reflects future bias. 
B)  reflects present bias. 
C)  reflects irrationality. 
D)  reflects uncontrollable addiction.

Question 7

If a non-renewable resource is scarce,has constant marginal cost of production and is sold in a competitive market,

Accepted Answer

A)  its price will increase over time. 
B)  its price will exceed marginal cost. 
C)  its price will increase by the rate of interest. 
D)  All of the above. 
A)  its price will increase over time. 
B)  its price will exceed marginal cost. 
C)  its price will increase by the rate of interest. 
D)  All of the above.

Question 8

If inflation is 10% and the nominal interest rate equals 16.6% the real interest rate is equal to

Accepted Answer

A)  6.6%. 
B)  6%. 
C)  -6.6%. 
D)  zero. 
A)  6.6%. 
B)  6%. 
C)  -6.6%. 
D)  zero.

Question 9

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 10

In developed industries,the interest rate tends to be lower than in newer industries.What could explain this?

Accepted Answer

A)  greater demand for loans in the developed industry 
B)  greater supply for loans in the new industry 
C)  greater demand for loans in the new industry 
D)  lower supply for loans in the developed industry 
A)  greater demand for loans in the developed industry 
B)  greater supply for loans in the new industry 
C)  greater demand for loans in the new industry 
D)  lower supply for loans in the developed industry

Question 11

If an asset has a future value of $120,a present value of $30,and an interest rate of 4%,how many periods of compounding are there?

Accepted Answer

A)  45 periods 
B)  35 periods 
C)  28 periods 
D)  100 periods 
A)  45 periods 
B)  35 periods 
C)  28 periods 
D)  100 periods

Question 12

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 13

Billy is considering the purchase of a rental house.The house costs $240,000 and it will generate annual revenues of $15,000 and annual expenses of $3,000.Nevertheless,Billy will need to borrow $240,000 at an interest rate of 7% per year in case he decides to make this investment.Should Billy purchase this house?

Accepted Answer

A)  No, he will lose money. 
B)  Yes, his profits will be zero. 
C)  No, his profits will be positive but close to zero. 
D)  Yes, he will profit from this investment. 
A)  No, he will lose money. 
B)  Yes, his profits will be zero. 
C)  No, his profits will be positive but close to zero. 
D)  Yes, he will profit from this investment.

Question 14

You won the "$1,000 per year forever" lottery.You decided to convert such prize into a lump sum payment.The interest rate is 2% per year.How much is this lump sum payment ?

Accepted Answer

A)  $25,000 
B)  $1,000 
C)  $50,000 
D)  $365,000 
A)  $25,000 
B)  $1,000 
C)  $50,000 
D)  $365,000

Question 15

The spread between price and marginal cost of an exhaustible resource must grow by the rate of interest so that

Accepted Answer

A)  resource owners earn a profit. 
B)  resource owners are willing to sell some of the resource in the future. 
C)  the price of the resource remains constant in real terms. 
D)  the marginal cost of extracting the resource declines. 
A)  resource owners earn a profit. 
B)  resource owners are willing to sell some of the resource in the future. 
C)  the price of the resource remains constant in real terms. 
D)  the marginal cost of extracting the resource declines.

Question 16

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%

Question 17

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 18

If a recession were to reduce the demand for loans,ceteris paribus,

Accepted Answer

A)  the interest rate will increase. 
B)  the interest rate will not change. 
C)  the interest rate will decrease. 
D)  the number of loans will increase. 
A)  the interest rate will increase. 
B)  the interest rate will not change. 
C)  the interest rate will decrease. 
D)  the number of loans will increase.

Question 19

A bond issuer agrees to pay a stated nominal amount each year.An increase in the nominal interest rate will cause

Accepted Answer

A)  the price of the bond to fall. 
B)  the price of the bond to rise. 
C)  the nominal value of the bond's coupon to rise. 
D)  the nominal value of the bond's coupon to fall. 
A)  the price of the bond to fall. 
B)  the price of the bond to rise. 
C)  the nominal value of the bond's coupon to rise. 
D)  the nominal value of the bond's coupon to fall.

Question 20

A firm should make an investment if the expected return is greater than

Accepted Answer

A)  the marginal cost of the investment. 
B)  the fixed cost of the investment. 
C)  the opportunity cost of the investment. 
D)  the expected rate of inflation. 
A)  the marginal cost of the investment. 
B)  the fixed cost of the investment. 
C)  the opportunity cost of the investment. 
D)  the expected rate of inflation.

The Net Present Value approach to investment results in an investment being undertaken only if

Suppose $100 is deposited in a bank account paying 5% compounded annually.If the interest earned is X after 5 years,then the interest earned will be 2X after 10 years.

Today John says: "I will start working out tomorrow." Yet,as tomorrow arrives he doesn't.This is an example of

Investment demand is downward sloping because as the interest rate decreases,

Which of the following is an example of an exhaustible resource?

An individual who wants to stop smoking but chooses not to

If a non-renewable resource is scarce,has constant marginal cost of production and is sold in a competitive market,

If inflation is 10% and the nominal interest rate equals 16.6% the real interest rate is equal to

Interest rates are positive mainly because

In developed industries,the interest rate tends to be lower than in newer industries.What could explain this?

If an asset has a future value of $120,a present value of $30,and an interest rate of 4%,how many periods of compounding are there?

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"?

You won the "$1,000 per year forever" lottery.You decided to convert such prize into a lump sum payment.The interest rate is 2% per year.How much is this lump sum payment ?

The spread between price and marginal cost of an exhaustible resource must grow by the rate of interest so that

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

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

If a recession were to reduce the demand for loans,ceteris paribus,

A bond issuer agrees to pay a stated nominal amount each year.An increase in the nominal interest rate will cause

A firm should make an investment if the expected return is greater than

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

The Net Present Value approach to investment results in an investment being undertaken only if

Suppose $100 is deposited in a bank account paying 5% compounded annually.If the interest earned is X after 5 years,then the interest earned will be 2X after 10 years.

Today John says: "I will start working out tomorrow." Yet,as tomorrow arrives he doesn't.This is an example of

Investment demand is downward sloping because as the interest rate decreases,

Which of the following is an example of an exhaustible resource?

An individual who wants to stop smoking but chooses not to

If a non-renewable resource is scarce,has constant marginal cost of production and is sold in a competitive market,

If inflation is 10% and the nominal interest rate equals 16.6% the real interest rate is equal to

Interest rates are positive mainly because

In developed industries,the interest rate tends to be lower than in newer industries.What could explain this?

If an asset has a future value of $120,a present value of $30,and an interest rate of 4%,how many periods of compounding are there?

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"?

You won the "$1,000 per year forever" lottery.You decided to convert such prize into a lump sum payment.The interest rate is 2% per year.How much is this lump sum payment ?

The spread between price and marginal cost of an exhaustible resource must grow by the rate of interest so that

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

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

If a recession were to reduce the demand for loans,ceteris paribus,

A bond issuer agrees to pay a stated nominal amount each year.An increase in the nominal interest rate will cause

A firm should make an investment if the expected return is greater than

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