Question 1

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 2

Which of the following is necessarily true of coupon bonds?

Accepted Answer

A) The price exceeds the face value. 
B) The coupon rate exceeds the interest rate. 
C) The price is equal to the coupon payments. 
D) The price is the sum of the present value of coupon payments and the face value. 
A) The price exceeds the face value. 
B) The coupon rate exceeds the interest rate. 
C) The price is equal to the coupon payments. 
D) The price is the sum of the present value of coupon payments and the face value.

Question 3

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 4

Compute the interest rate for a $1,000 face value a bond that sells for $280 and matures in 20 years.The bond has no coupon payments, only the face value payment.

Accepted Answer

Using a financial calculator a

Question 5

Doubling the future value will cause the:

Accepted Answer

A) present value to double. 
B) present value to decrease. 
C) present value to increase by less than 100%. 
D) interest rate, i, to decrease. 
A) present value to double. 
B) present value to decrease. 
C) present value to increase by less than 100%. 
D) interest rate, i, to decrease.

Question 6

A monthly growth rate of 0.5% is an annual growth rate of:

Accepted Answer

A) 6.00% 
B) 5.00% 
C) 6.17% 
D) 6.50% 
A) 6.00% 
B) 5.00% 
C) 6.17% 
D) 6.50%

Question 7

You win your state lottery.The lottery officials offer you the following options: you can accept annual payments of $50,000 for 20 years or receive an upfront payment of $700,000.Ignoring issues like mortality tables, taxes, etc.; and assuming the first payment is made immediately, what market interest rate would make it more attractive to take the upfront payment?

Accepted Answer

Using a financial calculator or a spread

Question 8

A lender expects to earn a real interest rate of 4.5% over the next 12 months.She charges a 9.25% (annual) nominal rate for a 12-month loan.What inflation rate is she expecting? If the lender is in a 30% marginal tax bracket, the borrower in a 25% marginal tax bracket, and they both have the same inflation expectations, what are the real after-tax rates each expects?

Accepted Answer

The first part she expected an inflation

Question 9

What is the present value of $100 promised one year from now at 10% annual interest?

Accepted Answer

A) $89.50 
B) $90.00 
C) $90.91 
D) $91.25 
A) $89.50 
B) $90.00 
C) $90.91 
D) $91.25

Question 10

Farou invests $2,000 at 8% interest.About how long will it take for Farou to double his investment ?

Accepted Answer

A) 4 years 
B) 5 years 
C) 8 years 
D) 9 years 
A) 4 years 
B) 5 years 
C) 8 years 
D) 9 years

Question 11

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 12

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 13

Compounding refers to the

Accepted Answer

A) calculation of after tax interest returns. 
B) internal rate of return a firm earns on an investment. 
C) real interest return after taxes. 
D) process of earning interest on both the principal and the interest of an investment. 
A) calculation of after tax interest returns. 
B) internal rate of return a firm earns on an investment. 
C) real interest return after taxes. 
D) process of earning interest on both the principal and the interest of an investment.

Question 14

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 15

How might the behavior of professional investment managers prior to the financial crisis of 2007-2009 contributed to the depth of the plunge of corporate and mortgage security prices during the crisis?

Accepted Answer

With market interest rates low and stabl

Question 16

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 17

Explain why countries with high and volatile inflation rates are likely to have volatile nominal interest rates.

Accepted Answer

Using the Fisher equation (that says the

Question 18

A mortgage, where the monthly payments are the same for the duration of the loan, is an example of a(n):

Accepted Answer

A) variable payment loan. 
B) installment loan. 
C) fixed payment loan. 
D) equity security. 
A) variable payment loan. 
B) installment loan. 
C) fixed payment loan. 
D) equity security.

Question 19

An individual is currently 30 years old, wants to work until the age of 65 and plans on dying at the age of 85.How much will the individual need to have saved by the time he or she is 65 if he or she plans on spending $40,000 per year while retired? You can assume the individual can earn an interest rate of 5.0% and the $40,000 is in addition to any Social Security that may be received.

Accepted Answer

We can use a financial calculator to det

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

Which of the following is necessarily true of coupon bonds?

The price of a coupon bond will increase as the:

Compute the interest rate for a $1,000 face value a bond that sells for $280 and matures in 20 years.The bond has no coupon payments, only the face value payment.

Doubling the future value will cause the:

A monthly growth rate of 0.5% is an annual growth rate of:

What is the present value of $100 promised one year from now at 10% annual interest?

Farou invests $2,000 at 8% interest.About how long will it take for Farou to double his investment ?

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?

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?

Compounding refers to the

The price of a coupon bond is determined by:

How might the behavior of professional investment managers prior to the financial crisis of 2007-2009 contributed to the depth of the plunge of corporate and mortgage security prices during the crisis?

The shorter the time until a payment the:

Explain why countries with high and volatile inflation rates are likely to have volatile nominal interest rates.

A mortgage, where the monthly payments are the same for the duration of the loan, is an example of a(n):

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

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

Which of the following is necessarily true of coupon bonds?

The price of a coupon bond will increase as the:

Compute the interest rate for a $1,000 face value a bond that sells for $280 and matures in 20 years.The bond has no coupon payments, only the face value payment.

Doubling the future value will cause the:

A monthly growth rate of 0.5% is an annual growth rate of:

What is the present value of $100 promised one year from now at 10% annual interest?

Farou invests $2,000 at 8% interest.About how long will it take for Farou to double his investment ?

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?

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?

Compounding refers to the

The price of a coupon bond is determined by:

How might the behavior of professional investment managers prior to the financial crisis of 2007-2009 contributed to the depth of the plunge of corporate and mortgage security prices during the crisis?

The shorter the time until a payment the:

Explain why countries with high and volatile inflation rates are likely to have volatile nominal interest rates.

A mortgage, where the monthly payments are the same for the duration of the loan, is an example of a(n):

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

Filters