Question 1

At any fixed interest rate, an increase in time, n, until a payment is made:

Accepted Answer

A)  increases the present value. 
B)  has no impact on the present value since the interest rate is fixed. 
C)  reduces the present value. 
D)  affects only the future value. 
A)  increases the present value. 
B)  has no impact on the present value since the interest rate is fixed. 
C)  reduces the present value. 
D)  affects only the future value.

Question 2

A bond offers a $50 coupon, has a face value of $1,000, and has 10 years to maturity. If the interest rate is 4.0% what is the value of this bond?

Accepted Answer

Realizing that the price of the bond is

Question 3

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 4

The higher the future value of the payment the:

Accepted Answer

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

Question 5

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

Accepted Answer

A)  0.0833% 
B)  0.833% 
C)  0.80% 
D)  1.0833% 
A)  0.0833% 
B)  0.833% 
C)  0.80% 
D)  1.0833%

Question 6

The future value of $200 that is left in account earning 6.5% interest for three years is best expressed by which of the following?

Accepted Answer

A)  $200(1.065) × 3 
B)  $200(1.065)/3 
C)  $200(1.065)ⁿ 
D)  $200(1.065)³ 
A)  $200(1.065) × 3 
B)  $200(1.065)/3 
C)  $200(1.065)ⁿ 
D)  $200(1.065)³

Question 7

Considering the data on real and nominal interest rates for the U.S. from 1979 to 2012, 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 8

The shorter the time until a payment the:

Accepted Answer

A)  higher the present value. 
B)  lower the present value because time is valuable. 
C)  lower must be the interest rate. 
D)  higher must be the interest rate. 
A)  higher the present value. 
B)  lower the present value because time is valuable. 
C)  lower must be the interest rate. 
D)  higher must be the interest rate.

Question 9

The future value of $100 at a 5% per year interest rate at the end of one year is:

Accepted Answer

A)  $95.00 
B)  $105.00 
C)  $97.50 
D)  107.50 
A)  $95.00 
B)  $105.00 
C)  $97.50 
D)  107.50

Question 10

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 11

As inflation increases, for any fixed nominal interest rate, the real interest rate:

Accepted Answer

A)  also increases. 
B)  remains the same, that's why it is real. 
C)  decreases. 
D)  decreases by less than the increase in inflation. 
A)  also increases. 
B)  remains the same, that's why it is real. 
C)  decreases. 
D)  decreases by less than the increase in inflation.

Question 12

Suppose that Stephen Curry, a basketball player for the Golden State Warriors, will become a free agent at the end of this NBA season. Suppose that Curry is considering two possible contracts from different teams. Note that the salaries are paid at the end of EACH year.  
The interest rate is 10%. Based on this information, which of the following is true?

Accepted Answer

A)  Curry should take the Boston contract because it has a higher present value. 
B)  Curry should take the Portland contract because it has a higher present value. 
C)  Curry is indifferent between the two contracts because they are both worth $12 million. 
D)  Curry is indifferent between the two contracts because they are both worth $10.9 million. 
A)  Curry should take the Boston contract because it has a higher present value. 
B)  Curry should take the Portland contract because it has a higher present value. 
C)  Curry is indifferent between the two contracts because they are both worth $12 million. 
D)  Curry is indifferent between the two contracts because they are both worth $10.9 million.

Question 13

Compute the future value of $1,000 at a 6 percent interest rate after three different lengths of time. Use 6, 10 and 20 years into the future.

Accepted Answer

We can use a calculator and the formula

Question 14

The price of a coupon bond will increase as the:

Accepted Answer

A)  face value decreases. 
B)  yield increases. 
C)  coupon payments increase. 
D)  term to maturity is shorter. 
A)  face value decreases. 
B)  yield increases. 
C)  coupon payments increase. 
D)  term to maturity is shorter.

Question 15

Doubling the future value will cause:

Accepted Answer

A)  the present value to fall by half. 
B)  the interest rate, i, to double. 
C)  no change to present value, only the interest rate. 
D)  the present value to double. 
A)  the present value to fall by half. 
B)  the interest rate, i, to double. 
C)  no change to present value, only the interest rate. 
D)  the present value to double.

Question 16

A coupon bond is a bond that:

Accepted Answer

A)  always sells at a price that is less than the face value. 
B)  provides the owner with regular payments. 
C)  pays the owner the sum of the coupons at the bond's maturity. 
D)  pays a variable coupon rate depending on the bond's price. 
A)  always sells at a price that is less than the face value. 
B)  provides the owner with regular payments. 
C)  pays the owner the sum of the coupons at the bond's maturity. 
D)  pays a variable coupon rate depending on the bond's price.

Question 17

What is the present value of $500 promised four years from now at 5% annual interest?

Accepted Answer

A)  $411.35 
B)  $400.00 
C)  $607.75 
D)  $520.00 
A)  $411.35 
B)  $400.00 
C)  $607.75 
D)  $520.00

Question 18

If a bond has a face value of $1,000 and the bondholder receives coupon payments of $27.50 semi-annually, the bond's coupon rate is:

Accepted Answer

A)  2.75% 
B)  5.50% 
C)  27.5% 
D)  a value that cannot be determined from the information provided. 
A)  2.75% 
B)  5.50% 
C)  27.5% 
D)  a value that cannot be determined from the information provided.

Question 19

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 20

Using the rule of 72, determine the approximate time it will take $1,000 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/

Exam 4: Future Value, Present Value and Interest Rates

At any fixed interest rate, an increase in time, n, until a payment is made:

A bond offers a $50 coupon, has a face value of $1,000, and has 10 years to maturity. If the interest rate is 4.0% what is the value of this bond?

The price of a coupon bond is determined by:

The higher the future value of the payment the:

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

The future value of $200 that is left in account earning 6.5% interest for three years is best expressed by which of the following?

Considering the data on real and nominal interest rates for the U.S. from 1979 to 2012, which of the following statements is most accurate?

The shorter the time until a payment the:

The future value of $100 at a 5% per year interest rate at the end of one year is:

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

As inflation increases, for any fixed nominal interest rate, the real interest rate:

Compute the future value of $1,000 at a 6 percent interest rate after three different lengths of time. Use 6, 10 and 20 years into the future.

The price of a coupon bond will increase as the:

Doubling the future value will cause:

A coupon bond is a bond that:

What is the present value of $500 promised four years from now at 5% annual interest?

If a bond has a face value of $1,000 and the bondholder receives coupon payments of $27.50 semi-annually, the bond's coupon rate is:

Which of the following expresses 4.85%?

Using the rule of 72, determine the approximate time it will take $1,000 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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