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

A saver knows that if she put $95 in the bank today she will receive $100 from the bank one year from now, including the interest she will earn.What is the interest rate she is earning?

A change in the interest rate:

A borrower who makes a $1000 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?

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)?

The value of $100 left in a savings account earning 5% a year, will be worth what amount after ten years?

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.

Higher savings usually requires higher interest rates because:

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?

An investment grows from $2,000 to $2,750 over the period of 10 years.What average annual growth rate will produce this result?

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?

Which of the following expresses 5.5%?

Explain why, if real interest rates are so important, we see most interest rates quoted in nominal terms.

According to the rule of 72:

Which of the following expresses 4.85%?

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?

Suppose a family wants to save $60,000 for a child's tuition.The child will be attending college in 18 years.For simplicity, assume the family is saving for a one-time college tuition payment.If the interest rate is 6%, then about how much does this family need to deposit in the bank today?

During the early 1980s, the U.S.economy experienced an increase in interest rates quoted on U.S.Treasury debt, business loans, and mortgages.At the same time the inflation rate gradually declined more than expected.What happened to ex ante versus ex post real interest rates during this period? Use the Fisher equation to support your answer.

Explain why an increase in expected inflation will result in an increase in nominal interest rates, holding other factors constant.

One hundred basis points could be expressed as:

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