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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,

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