 # Questions: Department of Finance

Better Essays
Towson University
Department of Finance
Fin331
Dr. M. Rhee
2010 Spring

NAME:

ID#:

1. If the interest is compounded quarterly with 8% APR, which of the following statements is CORRECT?

a. The periodic rate of interest is 2% and the effective rate of interest is 4%.
b. The periodic rate of interest is 8% and the effective rate of interest is greater than 8%.
c. The periodic rate of interest is 4% and the effective rate of interest is less than 8%.
d. The periodic rate of interest is 2% and the effective rate of interest is greater than 8%.
e. The periodic rate of interest is 8% and the effective rate of interest is also 8%.

2. What is the coefficient of variation for security a? Probability
Ra(State=?)
Rb(State=?)
Boom
a. Households reduce their consumption and increase their savings.
b. A new technology like the Internet has just been introduced, and it increases investment opportunities.
c. There is a decrease in expected inflation.
d. The economy falls into a recession.
e. The Federal Reserve decides to try to stimulate the economy. Answer: b
If the new technology were so efficient that it takes an underdeveloped economy from a subsistence level, where savings are necessarily low and rates high, to a level where people can afford to save, this might cause interest rates to decline. However, it would take time for this to occur.

10. You are comparing saving \$100 every month for a year vis-à-vis \$1,200 at the beginning of the year. How much extra will you have at the end of the year by saving \$ 1,200 at the beginning of the year instead of saving \$100 each month at the end of each month. Use 6% interest rate.

a. \$35.51
b. \$38.44
c. \$60.90
d. \$63.90
e. \$76.71