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| 1 | |
The future value of $200 at a 5% per year interest rate at the end of one year is: |
| | A) | $195.00 |
| | B) | $210.00 |
| | C) | $197.50 |
| | D) | None of the above. |
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| 2 | |
Which of the following expresses 6.5% |
| | A) | 0.0065 |
| | B) | 6.50 |
| | C) | 0.650 |
| | D) | 0.0650 |
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| 3 | |
Which of the following best expresses the proceeds a lender receives from a simple loan? |
| | A) | PV(1 + i) |
| | B) | FV/i |
| | C) | PV + i |
| | D) | PV/i |
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| 4 | |
Mark borrows $8,000 and then repays $8,600 to ABC bank. What is the interest rate on Mark's loan?" |
| | A) | $600 |
| | B) | 7.50% |
| | C) | 6.0% |
| | D) | None of the above |
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| 5 | |
Which of the following best expresses the payment a lender receives for lending their money for four years: |
| | A) | PV(1+i)4 |
| | B) | PV/(1 + i)4 |
| | C) | 4PV |
| | D) | None of the above. |
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| 6 | |
A lender is promised a $100 payment (including interest) one year from today. If the lender has a 8% opportunity cost of money, she should be willing to accept what amount today: |
| | A) | $100.00 |
| | B) | $108.20 |
| | C) | $92.59 |
| | D) | $96.40 |
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| 7 | |
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 entire two years she will have $1081.60. What amount is Mary depositing: |
| | A) | $960.60 |
| | B) | $900.00 |
| | C) | $1005.00 |
| | D) | $1000.00 |
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| 8 | |
The future value of $100 left in a savings account earning 4.5% for two and a half years is best expressed by: |
| | A) | $100(1.045)3/2 |
| | B) | $100( 0.45)2.5 |
| | C) | $100(1.045)2.5 |
| | D) | $100 x 2.5 x (1.045) |
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| 9 | |
The rule of 72 says that at 12% interest $100 should become $200 in about: |
| | A) | 72 months |
| | B) | 100 months |
| | C) | 12 years |
| | D) | 8.2 years |
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| 10 | |
The longer the time (n) until the payment: |
| | A) | The lower the present value. |
| | B) | The higher the present value because time is valuable. |
| | C) | The lower must be the interest rate. |
| | D) | None of the above. |
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| 11 | |
A change in the interest rate has: |
| | A) | A larger impact on the present value of a payment to be made far into the future than one to be made sooner. |
| | B) | Will not have a difference on the present value of two equal payments to be made at different times. |
| | C) | A smaller impact on the present value of a payment to be made far into the future than one to be made sooner. |
| | D) | None of the above. |
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| 12 | |
An investment has grown from $100.00 to $160.00 or 60% over four years. What annual increase gives a 60% increase over four years: |
| | A) | 7.50% |
| | B) | 12.48% |
| | C) | 15.00% |
| | D) | 13.24% |
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| 13 | |
People with a high discount rate will require: |
| | A) | A higher interest rate to entice them to save. |
| | B) | Investment options with longer maturities. |
| | C) | A lower interest rate to entice them to save. |
| | D) | a and b |
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| 14 | |
If the internal rate of return from an investment is less than the opportunity cost of funds: |
| | A) | The firm should make the investment. |
| | B) | The firm should not make the investment. |
| | C) | The firm should only make the investment using retained earnings. |
| | D) | None of the above. |
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| 15 | |
A mortgage, where the monthly payments are not the same for the duration of the loan, is an example of: |
| | A) | A variable payment loan. |
| | B) | An installment loan. |
| | C) | A fixed payment loan. |
| | D) | An equity security. |
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| 16 | |
An investment carrying a current cost of $130,000 is going to generate $70,000 of revenue for each of the next three years. To calculate the internal rate of return we need to: |
| | A) | Calculate the present value of each of the $70,000 payments and multiply these and set this equal to $130,000. |
| | B) | Take the present value of $210,000 for three years from now and set this equal to $130,000. |
| | C) | Set the sum of the present value of $70,000 for each of the next three years equal to $130,000. |
| | D) | Subtract $130,000 from $210,000 and set this difference equal to the interest rate. |
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| 17 | |
The price of a bond is determined by: |
| | 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 the bond's final payment. |
| | D) | Taking the sum of the present values of the future payments.. |
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| 18 | |
If a bond has a face value of $1,000 and the bondholder receives coupon payments of $35.00 semi-annually, the bond's coupon rate is: |
| | A) | 3.5% |
| | B) | 7.0% |
| | C) | 7.5% |
| | D) | Cannot be determined from the information provided. |
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| 19 | |
Which formula below best expresses the nominal interest rate, (r)? |
| | A) | i = r – πe |
| | B) | r = i + πe |
| | C) | i = r + πe |
| | D) | πe = i + r |
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| 20 | |
From the Fisher equation we see the relationship between the nominal interest rate and expected inflation is: |
| | A) | Direct and one-to-one. |
| | B) | Direct but more than one-to-one. |
| | C) | Inverse. |
| | D) | There is no relationship between these two variables. |
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