Exam 5: Interest Rates

A bank lends some money to a business. The business will pay the bank a single payment of $176,000 in ten years' time. How much greater is the present value (PV) of this payment if the interest rate is 9% rather than 8%?

Which of the following would be LEAST likely to lower the interest rate that a bank offers a borrower?

What, typically, is used to calculate the opportunity cost of capital on a risk-free investment?

In an effort to maintain price stability, it is expected that the European Central Bank will raise interest rates in the future. Which of the following is the most likely effect of such an action on short-term and long-term interest rates in Europe?

The term "opportunity" in opportunity cost of capital comes from the fact that any worthwhile opportunity for investment will have a cost: the risk to the capital invested.

Quality adjustments to changes in the CPI most often result in reductions to the inflation rate calculated from it.

A bank offers an account with an APR of 5.8% and an EAR of 5.88%. How does the bank compound interest for this account?

A truck costing $111,000 is paid off in monthly installments over four years with 8.10% APR. After three years the owner wishes to sell the truck. What is the closest amount from the following list that he needs to pay on his loan before he can sell the truck?

Given the above term structure of interest rates, which of the following is most likely in the future?

The effective annual rate (EAR) for a loan with a stated APR of 11% compounded quarterly is closest to ________.

Historically, why were high inflation rates associated with high nominal interest rates?

An animator needs a laptop for audio/video editing, and notices that he can pay $2600 for a Dell XPS laptop, or lease from the manufacturer for monthly payments of $75 each for four years. The designer can borrow at an interest rate of 14% APR compounded monthly. What is the cost of leasing the laptop over buying it outright?

In 2007, interest rates were about 4.5% and inflation was about 2.8%. What was the real interest rate in 2007?

Consider the following investment alternatives: The highest effective rate of return you could earn on any of these investments is closest to ________.

How do we decide on opportunity cost when we have several opportunities that need to be foregone?

Which of the following statements is FALSE?

What care, if any, should be taken when cash flows occur in periodicities that are shorter than a year (e.g., quarterly or monthly cash flows)?

If the current inflation rate is 3.6% and you have an investment opportunity that pays 10.9%, then the real rate of interest on your investment is closest to ________.

Use the table for the question(s) below. Suppose the term structure of interest rates is shown below: -After examining the yield curve, what predictions do you have about interest rates in the future? About future economic growth and the overall state of the economy?

Market forces determine interest rates based ultimately on the willingness of individuals, banks, and firms to borrow, save, and lend.