Question 1

Which of the following expresses 5.5%?

Accepted Answer

A) 0.0055 
B) 5.50 
C) 0.550 
D) 0.0550 
A) 0.0055 
B) 5.50 
C) 0.550 
D) 0.0550

Question 2

High rates of inflation are usually associated with:

Accepted Answer

A) Low nominal interest rates but high real interest rates 
B) High nominal interest rates and positive real interest rates 
C) Low nominal interest rates and low real interest rates 
D) High nominal interest rates and negative real rates 
A) Low nominal interest rates but high real interest rates 
B) High nominal interest rates and positive real interest rates 
C) Low nominal interest rates and low real interest rates 
D) High nominal interest rates and negative real rates

Question 3

If a bond has a face value of $1000 and a coupon rate of 4.25%, the bond owner will receive annual coupon payments of:

Accepted Answer

A) $425.00 
B) $4.25 
C) $42.50 
D) A value that cannot be determined from the information provided 
A) $425.00 
B) $4.25 
C) $42.50 
D) A value that cannot be determined from the information provided

Question 4

A lender expects to earn a real interest rate of 4.5% over the next 12 months.She charges a 9.25% (annual) nominal rate for a 12-month loan.What inflation rate is she expecting? If the lender is in a 30% marginal tax bracket and the borrower is in a 25% marginal tax bracket, what are the real after-tax rates each expects?

Accepted Answer

The first part she expected an inflation

Question 5

Discussions in recent years about the vulnerability of the Social Security System cause some people to feel the payments promised will not materialize.Discuss the possible changes we might observe now.

Accepted Answer

If people working now begin to question

Question 6

Convert each of the following basis points amounts to percents:
a) 412.5
b) 10
c) 125.7
d) 1075
e) 1

Accepted Answer

Since 1 basis point equals .01 percent,

Question 7

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 8

Calculate the internal rate of return for a machine that costs $500,000 and provides annual revenue of $115,000 per year for 5 years.You can assume all revenue is received once a year at the end of the year.

Accepted Answer

To solve this we equate the cost of the

Question 9

Considering the data on real and nominal interest rates for the U.S.from 1979 to 2006, which of the following statements is most accurate?

Accepted Answer

A) The real interest rate remains unchanged over time 
B) There have been times when the real interest rate has been negative 
C) Nominal interest rates higher in 2000 than they had been at any other point in time 
D) The inflation rate is always greater than the real interest rate 
A) The real interest rate remains unchanged over time 
B) There have been times when the real interest rate has been negative 
C) Nominal interest rates higher in 2000 than they had been at any other point in time 
D) The inflation rate is always greater than the real interest rate

Question 10

Compound interest means that:

Accepted Answer

A) You get an interest deduction for paying your loan off early 
B) You get interest on interest 
C) You get an interest deduction if you take out a loan for longer than one year 
D) Interest rates will rise on larger loans 
A) You get an interest deduction for paying your loan off early 
B) You get interest on interest 
C) You get an interest deduction if you take out a loan for longer than one year 
D) Interest rates will rise on larger loans

Question 11

What is the future value of $1000 after six months earning 12% annually?

Accepted Answer

A) $1050.00 
B) $1060.00 
C) $1120.00 
D) $1058.30 
A) $1050.00 
B) $1060.00 
C) $1120.00 
D) $1058.30

Question 12

Calculate which has a higher present value: an annual payment of $100 received over 3 years or an annual payment of $50 received over 7 years.In both cases the interest rate is 7% (or 0.07).

Accepted Answer

We can use the present value formula to

Question 13

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 six months 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 six months 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 14

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

Question 15

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

Accepted Answer

A) 12.00% 
B) 10.00% 
C) 14.11% 
D) 6.00% 
A) 12.00% 
B) 10.00% 
C) 14.11% 
D) 6.00%

Question 16

The rule of 72 says that at 6% interest $100 should become $200 in about:

Accepted Answer

A) 72 months 
B) 100 months 
C) 12 years 
D) 7.2 years 
A) 72 months 
B) 100 months 
C) 12 years 
D) 7.2 years

Question 17

Suppose that you have a winning lottery ticket for $100,000.The State of California doesn't pay this amount up front - this is the amount you will receive over time.The State offers you two options.The first pays you $80,000 up front and that will be the entire amount.The second pays you winnings over a three year period.The last option pays you a large payment today with small payments in the future.The payment options are detailed in the table below:

Accepted Answer

From the computations above, when the in

Question 18

Suppose Paul borrows $4000 for one year from his grandfather who charges Paul 7% interest.At the end of the year Paul will have to repay his grandfather:

Accepted Answer

A) $4,280 
B) $4,290 
C) $4,350 
D) $4,820 
A) $4,280 
B) $4,290 
C) $4,350 
D) $4,820

Question 19

The higher the future value of the payment:

Accepted Answer

A) The lower the present value 
B) The higher the present value 
C) The future value doesn't impact the present value, only the interest rate really matters 
D) The lower the present value because the interest rate must fall 
A) The lower the present value 
B) The higher the present value 
C) The future value doesn't impact the present value, only the interest rate really matters 
D) The lower the present value because the interest rate must fall

Question 20

Using the rule of 72, determine the approximate time it will take $1000 to double given the following interest rates.
a) 5.5%
b) 10.0%
c) 30.0%
d) 2.0%
e) 4.5%

Accepted Answer

Since the rule of 72 says if we take 72/

Which of the following expresses 5.5%?

High rates of inflation are usually associated with:

If a bond has a face value of $1000 and a coupon rate of 4.25%, the bond owner will receive annual coupon payments of:

Discussions in recent years about the vulnerability of the Social Security System cause some people to feel the payments promised will not materialize.Discuss the possible changes we might observe now.

Convert each of the following basis points amounts to percents: a) 412.5 b) 10 c) 125.7 d) 1075 e) 1

The internal rate of return of an investment is:

Calculate the internal rate of return for a machine that costs $500,000 and provides annual revenue of $115,000 per year for 5 years.You can assume all revenue is received once a year at the end of the year.

Considering the data on real and nominal interest rates for the U.S.from 1979 to 2006, which of the following statements is most accurate?

Compound interest means that:

What is the future value of $1000 after six months earning 12% annually?

Calculate which has a higher present value: an annual payment of $100 received over 3 years or an annual payment of $50 received over 7 years.In both cases the interest rate is 7% (or 0.07).

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

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

The rule of 72 says that at 6% interest $100 should become $200 in about:

Suppose Paul borrows $4000 for one year from his grandfather who charges Paul 7% interest.At the end of the year Paul will have to repay his grandfather:

The higher the future value of the payment:

Using the rule of 72, determine the approximate time it will take $1000 to double given the following interest rates. a) 5.5% b) 10.0% c) 30.0% d) 2.0% e) 4.5%

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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Exam 4: Future Value, Present Value, and Interest Rates

Which of the following expresses 5.5%?

High rates of inflation are usually associated with:

If a bond has a face value of $1000 and a coupon rate of 4.25%, the bond owner will receive annual coupon payments of:

Discussions in recent years about the vulnerability of the Social Security System cause some people to feel the payments promised will not materialize.Discuss the possible changes we might observe now.

Convert each of the following basis points amounts to percents: a) 412.5 b) 10 c) 125.7 d) 1075 e) 1

The internal rate of return of an investment is:

Calculate the internal rate of return for a machine that costs $500,000 and provides annual revenue of $115,000 per year for 5 years.You can assume all revenue is received once a year at the end of the year.

Considering the data on real and nominal interest rates for the U.S.from 1979 to 2006, which of the following statements is most accurate?

Compound interest means that:

What is the future value of $1000 after six months earning 12% annually?

Calculate which has a higher present value: an annual payment of $100 received over 3 years or an annual payment of $50 received over 7 years.In both cases the interest rate is 7% (or 0.07).

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

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

The rule of 72 says that at 6% interest $100 should become $200 in about:

Suppose Paul borrows $4000 for one year from his grandfather who charges Paul 7% interest.At the end of the year Paul will have to repay his grandfather:

The higher the future value of the payment:

Using the rule of 72, determine the approximate time it will take $1000 to double given the following interest rates. a) 5.5% b) 10.0% c) 30.0% d) 2.0% e) 4.5%

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

Filters