# Understanding interest rates

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Understanding Interest Rates 4.1 Measuring Interest Rates 1) The concept of ________ is based on the common-sense notion that a dollar paid to you in the future is less valuable to you than a dollar today. A) present value B) future value C) interest D) deflation Answer: A 2) The present value of an expected future payment ________ as the interest rate increases. A) falls B) rises C) is constant D) is unaffected Answer: A 3) An increase in the time to the promised future payment ________ the present value of the payment. A) decreases B) increases C) has no effect on D) is irrelevant to Answer: A 4) With an interest rate of 6 percent, the present value of \$100 next year is approximately A) \$106. B)…show more content…
B) current yield. C) yield to maturity. D) real interest rate. 29) Economists consider the ________ to be the most accurate measure of interest rates. A) simple interest rate. B) current yield. C) yield to maturity. D) real interest rate. Answer: C 30) For simple loans, the simple interest rate is ________ the yield to maturity. A) greater than B) less than C) equal to D) not comparable to Answer: C 31) If the amount payable in two years is \$2420 for a simple loan at 10 percent interest, the loan amount is A) \$1000. B) \$1210. C) \$2000. D) \$2200. Answer: C 32) For a 3-year simple loan of \$10,000 at 10 percent, the amount to be repaid is A) \$10,030. B) \$10,300. C) \$13,000. D) \$13,310. Answer: D 33) If \$22,050 is the amount payable in two years for a \$20,000 simple loan made today, the interest rate is A) 5 percent. B) 10 percent. C) 22 percent. D) 25 percent. Answer: A 34) If a security pays \$110 next year and \$121 the year after that, what is its yield to maturity if it sells for \$200? A) 9 percent B) 10 percent C) 11 percent D) 12 percent Answer: B 35) The present value of a fixed-payment loan is calculated as the ________ of the present value of all cash flow payments. A) sum B) difference C) multiple D) log Answer: A 36) Which of the following are true for a coupon bond? A) When the coupon bond is priced at its face value,