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.
2 Which of the following expresses 6.5%
A) 0.0065
B) 6.50
C) 0.650
D) 0.0650
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
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
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.
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
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
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)
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
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.
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.
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%
(1+i)n = FV/PV
(1+i)^4 = (160/100)
(1+i)^4 = (160/100)^(1/4) = 12.48 (red is showing solving of equation)
i= 12.46-1
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
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.
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.
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.
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..
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.
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
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.
