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| 1 | |
Compound interest is the idea: |
| | A) | That you get an interest deduction for paying your loan off early. |
| | B) | That you get interest on interest. |
| | C) | That you get an interest deduction if you take out a loan for longer than one year. |
| | D) | That interest rates will rise on larger loans. |
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| 2 | |
Which of the following best expresses the payment a saver receives for investing their money for two years? |
| | A) | PV + PV |
| | B) | PV + PV (1 + i) |
| | C) | PV(1 + i)2 |
| | D) | 2PV(1 +i) |
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| 3 | |
Suppose Paul borrows $4000 for one year from his grandfather who charges Paul 7% interest. At the end of the year Paul will have to repay his grandfather: |
| | A) | $4,280 |
| | B) | $4,290 |
| | C) | $4,350 |
| | D) | None of the above |
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| 4 | |
A saver knows that she will receive $100 from the bank one year from now, which includes the interest she will earn. What is the interest rate she is earning if she put $95 in the bank today? |
| | A) | 5.10% |
| | B) | 6.00% |
| | C) | 5.52% |
| | D) | 5.26% |
| | E) | None of the above |
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| 5 | |
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 $540.80. What amount is Mary depositing? |
| | A) | $520.00 |
| | B) | $514.50 |
| | C) | $500.00 |
| | D) | $512.40 |
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| 6 | |
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) | 4.25% |
| | B) | 6.38% |
| | C) | 4.52% |
| | D) | 5.63% |
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| 7 | |
The value of $100 left in a certificate of deposit for four years that earns 4.5% annually will be: |
| | A) | $120.00 |
| | B) | $119.25 |
| | C) | $117.00 |
| | D) | $145.00 |
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| 8 | |
The future value of $100 left in a savings account earning 3.5% for three and a half years is best expressed by: |
| | A) | $100(1.035)3.5 |
| | B) | $100(0.35)3.5 |
| | C) | $100 x 3.5 x (1.035) |
| | D) | $100(1.035)3/2 |
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| 9 | |
The present value of $500 that you have to wait four years and three months to receive is best expressed by: |
| | A) | ($500/4.25) x (1+i) |
| | B) | $500 x 4.25 x (1 +i) |
| | C) | $500/(1+i)4.25 |
| | D) | None of the above |
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| 10 | |
The relationship between present value and the interest rate could best be described as: |
| | A) | A direct relationship, they both move together. |
| | B) | An inverse relationship, as i increases, PV decreases. |
| | C) | An unclear relationship, whether it is direct or inverse depends on the interest rate. |
| | D) | None of the above. |
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| 11 | |
At any fixed interest rate, an increase in time, n, until a payment is made: |
| | A) | Increases the present value. |
| | B) | Has no impact on the present value since the interest rate is fixed. |
| | C) | Reduces the present value. |
| | D) | None of the above. |
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| 12 | |
People who have high personal discount rates are: |
| | A) | More likely to save their current income. |
| | B) | Less like to save their current income. |
| | C) | Not affected, discount rates do not impact saving decisions. |
| | D) | Equally likely to save their current income as people with low discount rates. |
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| 13 | |
Which formula below best expresses the real interest rate, (r)? |
| | A) | i = r – πe |
| | B) | r = i + πe |
| | C) | r = i – πe |
| | D) | πe = i + r |
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| 14 | |
As inflation increases, for any fixed nominal interest rate, the real interest rate: |
| | A) | Also increases. |
| | B) | Remains the same. |
| | C) | Decreases. |
| | D) | Decreases by less than the increase in inflation. |
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| 15 | |
A borrower is offered a choice between a fixed rate mortgage and a variable rate mortgage. The variable rate mortgage may be more attractive to the lender if: |
| | A) | The lender expects inflation to decrease. |
| | B) | The lender expects the home price to decrease. |
| | C) | The lender expects the home price to increase. |
| | D) | The lender expects inflation to increase. |
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