Exam 4: Future Value, Present Value and Interest Rates

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?

A bond offers a $40 coupon, has a face value of $1,000, and 10 years to maturity. If the interest rate is 5.0%, what is the value of this bond?

We should expect a country that experiences volatile inflation to also have:

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. What amount is Mary depositing?

Which of the following expresses 5.65%?

A monthly growth rate of 0.6% is an annual growth rate of:

Which of the following best expresses the payment a saver receives for investing their money for two years?

Consider a bond that costs $1,000 today and promises a one-time future payment of $1,080 in four years. What is the approximate interest rate on this bond?

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.

Credit:

The coupon rate for a coupon bond is equal to the:

Suppose you negotiate a one-year loan with a principal of $1000 and the nominal interest rate is currently 7%. You expect the inflation rate to be 3% over the next year. When you repay the principal plus interest at the end of the year, the actual inflation rate is 2.5%. Compute the ex ante and ex post real interest rate. Who benefits from this unexpected decrease in inflation? Who loses?

A borrower who makes a $1,000 loan for one year and earns interest in the amount of $75, earns what nominal interest rate and what real interest rate if inflation is two percent?

Which of the following expresses 5.5%?

Interest rates that are adjusted for expected inflation are known as:

An investment carrying a current cost of $120,000 is going to generate $50,000 of revenue for each of the next three years. To calculate the internal rate of return we need to:

Suppose Paul borrows $4,000 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 present value and the interest rate have:

How has Islamic banking redefined lending to deal with Islam's prohibition of usury?

A lender is promised a $100 payment (including interest) one year from today. If the lender has a 6% opportunity cost of money, he/she should be willing to accept what amount today?