Question 1

Usually an investment will be profitable if:

Accepted Answer

A) The internal rate of return is less than the cost of borrowing 
B) The cost of borrowing is equal to the internal rate of return 
C) It is financed with retained earnings 
D) The cost of borrowing is less than the internal rate of return 
A) The internal rate of return is less than the cost of borrowing 
B) The cost of borrowing is equal to the internal rate of return 
C) It is financed with retained earnings 
D) The cost of borrowing is less than the internal rate of return

Question 2

The price of a coupon bond is determined by:

Accepted Answer

A) Taking the present value of the bond's final payment and subtracting the coupon payments 
B) Taking the present value of the coupon payments and adding this to the face value 
C) Taking the present value of all of the bond's payments 
D) Estimating its future value 
A) Taking the present value of the bond's final payment and subtracting the coupon payments 
B) Taking the present value of the coupon payments and adding this to the face value 
C) Taking the present value of all of the bond's payments 
D) Estimating its future value

Question 3

If a saver has a positive rate of time preference then the present value of $100 to be received 1 year from today is:

Accepted Answer

A) more than $100 
B) not calculable 
C) less than 100 
D) unknown to the saver 
A) more than $100 
B) not calculable 
C) less than 100 
D) unknown to the saver

Question 4

Sharon deposits $150.00 in her savings account at the bank.At the end of one year she has $156.38.What was the interest rate that Sharon earned?

Accepted Answer

A) 4.25% 
B) 6.38% 
C) 4.52% 
D) 5.63% 
A) 4.25% 
B) 6.38% 
C) 4.52% 
D) 5.63%

Question 5

The lower the interest rate, i:

Accepted Answer

A) The lower is the present value 
B) The greater must be n 
C) The higher is the present value 
D) The higher is the future value 
A) The lower is the present value 
B) The greater must be n 
C) The higher is the present value 
D) The higher is the future value

Question 6

Suppose Tom receives one-year loan from ABC Bank for $5000.00.At the end of the year, Tom repays $5400.00 to ABC Bank.Assuming the simple calculation of interest, the interest rate on Tom's loan was:

Accepted Answer

A) $400 
B) 8.00% 
C) 7.41% 
D) 20% 
A) $400 
B) 8.00% 
C) 7.41% 
D) 20%

Question 7

Which of the following expresses 4.85%?

Accepted Answer

A) 0.0485 
B) 4.850 
C) 0.00485 
D) 0.485 
A) 0.0485 
B) 4.850 
C) 0.00485 
D) 0.485

Question 8

A change in the interest rate:

Accepted Answer

A) Has a smaller impact on the present value of a payment to be made far into the future than on one to be made sooner 
B) Will not make a difference in the present values of two equal payments to be made at different times 
C) Has a larger impact on the present value of a payment to be made far into the future than on one to be made sooner 
D) Has a larger impact on the present value of a bigger payment to be made far into the future than on one of lesser value 
A) Has a smaller impact on the present value of a payment to be made far into the future than on one to be made sooner 
B) Will not make a difference in the present values of two equal payments to be made at different times 
C) Has a larger impact on the present value of a payment to be made far into the future than on one to be made sooner 
D) Has a larger impact on the present value of a bigger payment to be made far into the future than on one of lesser value

Question 9

A bond offers a $40 coupon, has a face value of $1000, and 10 years to maturity.If the interest rate is 5.0%, what is the value of this bond?

Accepted Answer

Realizing that the price of the bond is

Question 10

If the interest rate is zero, a promise to receive a $100 payment one year from now is:

Accepted Answer

A) More valuable than receiving $100 today 
B) Less valuable than receiving $100 today 
C) Equal in value to receiving $100 today 
D) Equal in value to receiving $101 today 
A) More valuable than receiving $100 today 
B) Less valuable than receiving $100 today 
C) Equal in value to receiving $100 today 
D) Equal in value to receiving $101 today

Question 11

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

Accepted Answer

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

Question 12

If 10% is the annual rate, considering compounding, the monthly rate is:

Accepted Answer

A) 0.0833% 
B) 0.833% 
C) 0.00797% 
D) 1.0833% 
A) 0.0833% 
B) 0.833% 
C) 0.00797% 
D) 1.0833%

Question 13

Describe the effects on the value of a bond from the following: length of time to maturity and interest rates (you can ignore the relationship of the coupon rate to market interest rates to simplify the analysis).

Accepted Answer

Holding everything else constant, like c

Question 14

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 15

In reading the national business news, you hear that mortgage rates increased by 50 basis points.If mortgage rates were initially at 6.5%, what are they after this increase?

Accepted Answer

A) 6.55% 
B) 7.0% 
C) 11.5% 
D) 56.5% 
A) 6.55% 
B) 7.0% 
C) 11.5% 
D) 56.5%

Question 16

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 17

Mary deposits funds into a CD at her bank.The CD has an annual interest of 4.0%.If Mary leaves the funds in the CD for two years she will have $540.80.Assuming no penalties for withdrawing the funds early, what amount would Mary have at the end of one year?

Accepted Answer

A) $521.60 
B) $490.00 
C) $500.00 
D) $520.00 
A) $521.60 
B) $490.00 
C) $500.00 
D) $520.00

Question 18

What is the monthly interest rate if you are asked to convert a 12 percent annual rate to a monthly rate (calculate to 4 decimal places)?

Accepted Answer

It is not as simple as dividing 12 perce

Question 19

Explain the suggestion that people may have their own "personal discount rate" and how that may affect decisions about borrowing and other financial matters.

Accepted Answer

A good illustration of this comes from t

Question 20

The coupon rate for a coupon bond is equal to:

Accepted Answer

A) The annual coupon payment divided by the face value of the bond 
B) The annual coupon payment divided by the purchase price of the bond 
C) The purchase price of the bond divided by the coupon payment 
D) The annual coupon payment divided by the selling price of the bond 
A) The annual coupon payment divided by the face value of the bond 
B) The annual coupon payment divided by the purchase price of the bond 
C) The purchase price of the bond divided by the coupon payment 
D) The annual coupon payment divided by the selling price of the bond

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

Usually an investment will be profitable if:

The price of a coupon bond is determined by:

If a saver has a positive rate of time preference then the present value of $100 to be received 1 year from today is:

Sharon deposits $150.00 in her savings account at the bank.At the end of one year she has $156.38.What was the interest rate that Sharon earned?

The lower the interest rate, i:

Suppose Tom receives one-year loan from ABC Bank for $5000.00.At the end of the year, Tom repays $5400.00 to ABC Bank.Assuming the simple calculation of interest, the interest rate on Tom's loan was:

Which of the following expresses 4.85%?

A change in the interest rate:

A bond offers a $40 coupon, has a face value of $1000, and 10 years to maturity.If the interest rate is 5.0%, what is the value of this bond?

If the interest rate is zero, a promise to receive a $100 payment one year from now is:

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

If 10% is the annual rate, considering compounding, the monthly rate is:

Describe the effects on the value of a bond from the following: length of time to maturity and interest rates (you can ignore the relationship of the coupon rate to market interest rates to simplify the analysis).

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?

In reading the national business news, you hear that mortgage rates increased by 50 basis points.If mortgage rates were initially at 6.5%, what are they after this increase?

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?

Mary deposits funds into a CD at her bank.The CD has an annual interest of 4.0%.If Mary leaves the funds in the CD for two years she will have $540.80.Assuming no penalties for withdrawing the funds early, what amount would Mary have at the end of one year?

What is the monthly interest rate if you are asked to convert a 12 percent annual rate to a monthly rate (calculate to 4 decimal places)?

Explain the suggestion that people may have their own "personal discount rate" and how that may affect decisions about borrowing and other financial matters.

The coupon rate for a coupon bond is equal to:

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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