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| 1 | |
The present value of a future payment is, ceteris paribus, higher when the: |
| | A) | size of the future payment is smaller. |
| | B) | interest rate rises. |
| | C) | payment is received sooner. |
| | D) | All of the above are correct. |
| | E) | None of the above is correct. |
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| 2 | |
Expressed as a decimal value, 7.5% is represented as: |
| | A) | 0.75 |
| | B) | 0.075 |
| | C) | 0.0075 |
| | D) | None of the above is correct. |
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| 3 | |
Suppose that an initial balance of $200 is placed in an interest-bearing account for 5 years when the interest rate equals i. Which of the following represents the value of this balance at the close of this time period? |
| | A) | $200 + 5i |
| | B) | $200(1+5i) |
| | C) | $200(1+i)5 |
| | D) | $200 / (1+i)5 |
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| 4 | |
Suppose that $1,000 is deposited in an interest-bearing account for 3 years when the annual interest rate is 5%. At the end of this three-year period, the value of the balance will equal: |
| | A) | $863.84. |
| | B) | $1,000.00. |
| | C) | $1,050.00. |
| | D) | $1,150.00. |
| | E) | $1,157.62. |
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| 5 | |
Using the rule of 72, if $1,000 is deposited in an account that provides 3% annual interest, approximately how long will it take for the balance in this account to increase to $2,000? |
| | A) | 2 years |
| | B) | 6 years |
| | C) | 12 years |
| | D) | 24 years |
| | E) | 72 years |
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| 6 | |
Suppose that a balance of $X is deposited in an account for 18 months. If the annual interest rate is i, which of the following represents the value of this balance at the end of the 18-month period? |
| | A) | $X(1+i)18 |
| | B) | $X(1+i)1.5 |
| | C) | c)$X(1+18i) |
| | D) | None of the above is correct. |
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| 7 | |
If the annual interest rate is 6%, the corresponding monthly interest rate is: |
| | A) | 0.50%. |
| | B) | 0.487%. |
| | C) | 0.72%. |
| | D) | 0.072%. |
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| 8 | |
Suppose that the interest rate is initially 5.25%. If the interest rate rises by 3 basis points, the new interest rate is: |
| | A) | 8.25%. |
| | B) | 5.55%. |
| | C) | 5.28%. |
| | D) | None of the above is correct. |
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| 9 | |
When the interest rate is 5%, the present value of $1,000 received two years from now equals: |
| | A) | $1000. |
| | B) | $1010. |
| | C) | $952.38. |
| | D) | $907.03. |
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| 10 | |
The present value of a future payment is: |
| | A) | the same as the future value. |
| | B) | the amount that has to be given up today to receive the future value at the specified future date. |
| | C) | always greater than the future value. |
| | D) | All of the above are correct. |
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| 11 | |
When the interest rate rises, the price of discount bonds will: |
| | A) | fall. |
| | B) | rise. |
| | C) | remain unchanged. |
| | D) | This cannot be determined without additional information. |
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| 12 | |
The internal rate of return on an asset is: |
| | A) | always less than the market interest rate. |
| | B) | the price of the asset at which the net benefit from holding the asset is zero. |
| | C) | the interest rate at which the present value of the payment stream associated with the asset equals the asset price. |
| | D) | All of the above are correct. |
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| 13 | |
An individual should undertake an investment if: |
| | A) | the internal rate of return is less than the market interest rate. |
| | B) | the internal rate of return is greater than the market interest rate. |
| | C) | the present value of the revenue stream generated by the investment is less than the present value of the cost of the investment. |
| | D) | None of the above is correct. |
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| 14 | |
When the interest rate falls, holders of coupon bonds will experience a(n): |
| | A) | increase in the value of the bonds that they are already holding. |
| | B) | decrease in the value of the bonds that they are already holding. |
| | C) | unchanged value for the bonds that they are already holding. |
| | D) | unpredictable effect on the value of the bonds that they hold. |
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| 15 | |
Suppose that a discount bond provides a payment of $10,000 in 2 years. If the interest rate is 7%, the current price of this bond will be: |
| | A) | $10,140.00. |
| | B) | $10,700.00. |
| | C) | $8734.39. |
| | D) | $8600.00. |
| | E) | $8632.23. |
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| 16 | |
The real interest rate is approximately equal to: |
| | A) | nominal interest rate / price index. |
| | B) | nominal interest rate x price index. |
| | C) | nominal interest rate + the expected inflation rate. |
| | D) | nominal interest rate – the expected inflation rate. |
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| 17 | |
Which of the following statements is incorrect? |
| | A) | The real interest rate can be negative. |
| | B) | Higher nominal interest rates are usually associated with higher inflation rates. |
| | C) | Higher real interest rates are usually associated with higher inflation rates. |
| | D) | It is easier to compute the ex post real interest rate than the ex ante real interest rate. |
| | E) | None of the above is incorrect. |
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