A) $5000.
B) $5050 to be received two years from now.
C) $5075 to be received three years from now.
D) $5500 to be received ten years from now.
50. The present value of a $1000 payment received 2 years from now at 5% annual interest will
be less than $900 because of
A) taxes.
B) compounding.
C) withholding.
D) double jeopardy.
51. A 60 month car loan (where no down payment was made) with a 6% interest rate and a
monthly payment of $500 would allow the borrower to buy a
A) $35,500 car.
B) $30,000 car.
C) $25,863 car.
D) $28,200 car.
52. If payments of $1000 are to be received every year for 20 years and if the interest rate is
positive, the present value of this stream will
A) exceed $1000×20 ($20,000).
B) equal $1000×20 ($20,000)
C) be less than $1000×20 ($20,000).
D) increase as the interest rate increases.
53. If you know that you can afford a $500 per month car payment for the next 48 months, the
interest rate is positive and you have found a car dealer who will agree to a zero down
payment you will
A) be able to afford a $25,000 car (which is more than $500×48).
B) be able to afford a $24,000 car (which is exactly $500×48).
C) be able to afford something less than a $24,000 car.
D) be able to finance a more expensive car when the interest rate is high.
54. If you have a business opportunity that is pretty much a sure thing that will require you to
borrow $1,000,000, but will return to you $200,000 a year in profit for ten years, this is
A) a wise investment regardless of interest rates.
B) an unwise investment regardless of interest rates.
C) an investment which depends on the interest rate that must be paid on the loan.
D) an investment which will be more attractive when the interest rate is high.
55. If you are anticipating having to pay $100,000 to a lender 10 years from now and the interest
rate rises, the present value of this sum
A) falls.
B) rises.
C) remains unchanged.
D) first rises, then falls.
56. If you are anticipating having to pay $100,000 to a lender 10 years from now and the interest
rate falls, the present value of this sum
A) falls.
B) rises.
C) remains unchanged.
D) becomes more uncertain.
57. If your broker tells you that a trust to which you are a beneficiary has changed and instead of
getting $5000 per year starting next year you will be getting $4000 per year starting next
year, the present value to you has
A) fallen.
B) risen.
C) remained unchanged.
D) necessarily become more predictable.
58. If your broker tells you that a trust to which you are a beneficiary has changed and instead of
getting $5000 per year starting next year you will be getting $6000 per year starting next year
the present value to you has
A) fallen.
B) risen.
C) remained unchanged.
D) necessarily become more predictable.
59. If your broker tells you that a trust to which you are a beneficiary has changed and instead of
getting $5000 per year starting next year you will be getting $6000 per year but it will be
starting the year after next the present value to you has
A) fallen.
B) risen.
C) remained unchanged.
D) might have either fallen or risen, depending on the interest rate.
60. The possibility that an investor will not receive full payment is called
A) an advance.
B) Credit.
C) the index problem.
D) Risk.
61. The form of risk to the lender associated with a borrower not paying their debt is called
A) market risk.
B) default risk.
C) overall risk.
D) complete risk.
62. The form of risk to the investor associated with the asset unexpectedly falling in price is
called
A) market risk.
B) default risk.
C) overall risk.
D) complete risk.
63. The reward investors receive for accepting the probability that they will not be fully paid as
agreed or as anticipated is called the
A) risk adjustment.
B) risk premium.
C) interest rate.
D) real interest rate.
64. The relationship between the rate of return earned on a bond and the length of time until the
bond matures is called the
A) interest rate.
B) real interest rate.
C) calendar.
D) yield curve.
65. The interest rate at which the present value of costs equals the present value benefits is the
A) coupon interest rate.
B) yield to maturity.
C) internal rate of return.
D) market interest rate
66. If an investment requires payment of $10,000 now and promises to return a single payout of
$15,000 one year from now, the net present value of the investment at an interest rate of 12%
is approximately
A) $3,393.
B) $5,000.
C) $10,000.
D) $13,393.
67. If an investment requires payment of $5,000 now and promises to return a single payout of
$15,000 one year from now, the net present value of the investment at an interest rate of 10%
is approximately
A) $3,636.
B) $8,636.
C) $10,000.
D) $13,636.
68. If an investment requires payment of $10,000 now and promises to return a payout of
$15,000 one year from now and another payout of $15,000 two years from now, the net
present value of the investment at an interest rate of 8% is approximately
A) $5,000.
B) $11,749.
C) $16,749.
D) $26,749.
69. The interest-adjusted value of past payments is
A) intrinsic value.
B) real value.
C) present value.
D) future value.
70. So long as the interest is greater than zero, the future value of any balance is
A) greater than the value itself.
B) smaller than the value itself.
C) equal to the value itself.
D) either larger or smaller than the balance itself, depending upon the size of the positive
interest rate.
71. If your grandmother gives you a high school graduation gift of $5,000 and you do not spend
the gift, but invest it to earn an interest rate of 6% per year compounded annually, upon your
graduation from college after exactly four years your gift will be worth
A) $5000.
B) $5000 x (1.06)4.
C) $5000 / (1.04)4.
D) $5000 / (1+.24).
72. If your grandmother gives you a high school graduation gift of $5,000 and you do not spend
the gift, but invest it to earn an interest rate of 6% per year compounded annually, upon your
graduation from college after exactly four years your gift will be worth approximately
A) $5000.
B) $5789.
C) $6312.
D) $9327.
73. Dividing the number seventy-two by an interest rate yields
A) the square root of seventy-two.
B) the lowest common denominator of seventy-two.
C) the real interest rate after seventy-two years.
D) the Rule of 72.
74. Dividing the number seventy-two by an interest rate yields
A) the annual payment required to pay off a loan at that interest rate.
B) the number of years it would take an investment to double in value.
C) a good measure of the level of risk in the investment proposal.
D) all of these options are correct.
75. If your grandmother gives you $5,000 and you don’t spend it, but invest it to earn 8% per
year compounded annually, it will be worth $10,000 at the end of
A) 72 years.
B) 10 years.
C) 9 years.
D) 8 years.
76. Firms need to borrow for operating purposes because they
A) need to pay for goods and services after they have sold them.
B) need to pay for goods and services before they will have revenue from their sales.
C) are always in debt.
D) need constant bailouts.
77. A typical firm that needs operating capital has
A) constantly increasing income.
B) seasonal income.
C) constantly decreasing income.
D) unpredictable income.
78. In the market for money the supply curve is made up of
A) borrowers.
B) savers.
C) neither borrowers nor savers.
D) a combination of borrowers and savers.
79. In the market for money the demand curve is made up of
A) borrowers.
B) savers.
C) neither borrowers nor savers.
D) a combination of borrowers and savers.
80. In the market for money the behavior of borrowers is represented by the
A) demand curve.
B) supply curve.
C) neither the supply curve nor the demand curve.
D) a combination of the supply and demand curves.
81. In the market for money the behavior of savers is represented by the
A) demand curve.
B) supply curve.
C) neither the supply curve nor the demand curve.
D) a combination of the supply and demand curves.
82. In the market for money the price is called the
A) interest rate.
B) wage rate.
C) exchange rate.
D) same as any other market, simply a “Price.”
83. The advertized interest rate is the
A) nominal interest rate.
B) real interest rate.
C) expected rate of inflation.
D) nominal interest rate minus the expected rate of inflation.
84. The compensation savers receive for waiting on their consumption is the
A) nominal interest rate.
B) real interest rate.
C) expected rate of inflation.
D) nominal interest rate minus the real interest rate.
85. The difference between the nominal rate of interest and the real rate of interest is the
A) interest rate.
B) expected interest rate.
C) expected rate of inflation.
D) advertized interest rate.
86. Savers are motivated by the
A) nominal interest rate.
B) real interest rate.
C) expected rate of inflation.
D) advertized interest rate.
87. If the interest rate is 10%, the present value of $100 to be paid next year is
A) $100/1.1.
B) $100/.1.
C) $100/10.
D) $110.
88. If the interest rate is 10%, at the end of one year the value of $100 invested now is
A) $100/1.1.
B) $100/.1.
C) $100/10.
D) $110.
89. If the interest rate is 10%, the present value of $100 to be paid in two years is
A) $100/1.1.
B) $100/1.12.
C) $80.
D) $121.
90. If the interest rate is 10%, at the end of two years the value of $100 invested now is
A) $100/1.1
B) $100/1.12
C) $120
D) $121
91. If a person is going to pay $1000 per month every month for 30 years, what do you know
about their mortgage (if the interest rate is positive)?
A) Nothing.
B) The loan amount was more than $360,000.
C) The loan amount was exactly $360,000.
D) The loan amount was less than $360,000.
92. If a person is going to pay $500 per month every month for 5 years, what do you know about
their car loan (if the interest rate is positive)?
A) Nothing.
B) The loan amount was more than $30,000.
C) The loan amount was exactly $30,000.
D) The loan amount was less than $30,000.
93. If a person is going to borrow $360,000 for a home and pay it off with a constant mortgage
payment every month for 30 years, what do you know about their mortgage payment (if the
interest rate is positive)?
A) Nothing.
B) The payment is more than $1,000 per month.
C) The payment is exactly than $1,000 per month.
D) The payment is less than $1,000 per month.
94. If a person is going to borrow $30,000 for a car and pay it off with a constant mortgage
payment every month for 5 years, what do you know about their car payment (if the interest
rate is positive)?
A) Nothing.
B) The payment is more than $500 per month.
C) The payment is exactly than $500 per month.
D) The payment is less than $500 per month.
95. If a person is going to pay $500 per month every month for 5 years, what do you know about
their car loan (if the interest rate is positive)?
A) Nothing.
B) The loan amount was more than $30,000.
C) The loan amount was exactly $30,000.
D) The loan amount was less than $30,000.
96. If a person is going to borrow $360,000 for a home and pay it off in monthly payments of
$1,000 for 30 years the internal rate of return is
A) 0%.
B) 5%.
C) 10%.
D) 15%.
97. If a person is going to borrow $360,000 for a home and pay it off in monthly payments of
$1,932.56 for 30 years the internal rate of return is
A) 0%.
B) 5%.
C) 10%.
D) 15%.
98. If a person is going to borrow $360,000 for a home and pay it off in monthly payments of
$3,159.26 for 30 years the internal rate of return is
A) 0%.
B) 5%.
C) 10%.
D) 15%.
99. If a person is going to borrow $360,000 for a home and pay it off in monthly payments of
$4,552.00 for 30 years the internal rate of return is
A) 0%.
B) 5%.
C) 10%.
D) 15%.
100. If a person is going to borrow $30,000 for a car and pay it off in monthly payments of $500
for 5 years the internal rate of return is
A) 0%.
B) 5%.
C) 10%.
D) 15%.
101. If a person is going to borrow $30,000 for a car and pay it off in monthly payments of
$566.14 for 5 years the internal rate of return is
A) 0%.
B) 5%.
C) 10%.
D) 15%.
102. If a person is going to borrow $30,000 for a car and pay it off in monthly payments of
$637.41 for 5 years the internal rate of return is
A) 0%.
B) 5%.
C) 10%.
D) 15%.
103. If a person is going to borrow $30,000 for a car and pay it off in monthly payments of
$713.70 for 5 years the internal rate of return is
A) 0%.
B) 5%.
C) 10%.
D) 15%.
104. Suppose you were given $100,000 by your grandparents and told that you could spend half
of it but were to invest the other half to give your own grandchild a gift. What concept would
you use to figure out how much your present to your grandchild would be worth in 40 years?
A) Present Value
B) Future Value
C) The Rule of 72
D) Internal Rate of Return
105. Suppose your grandmother dies and leaves you $100,000 but it will be held (without interest
accruing) for another two years. You are trying to figure out how much you can borrow now
so that when you get the money it can be paid off with this $100,000. What concept would
you use?
A) Present Value
B) Future Value
C) The Rule of 72
D) Internal Rate of Return
106. Suppose your grandmother dies and leaves you $100,000. You are trying to figure out how
long it will take for it to double in value and you don’t have a calculator handy. What
concept would you use?
A) Present Value
B) Future Value
C) The Rule of 72
D) Internal Rate of Return
107. Using the Rule of 72, how long will it take something growing at 1% per year to double
A) 100 years
B) 72 years
C) 50 years
D) 720 years
108. Using the Rule of 72, how long will it take something growing at 2% per year to double
A) 100 years.
B) 50 years.
C) 36 years.
D) 144 years.
109. Using the Rule of 72, how long will it take something growing at 3% per year to double
A) 100 years.
B) 72 years.
C) 24 years.
D) 216 years.
110. Using the Rule of 72, how long will it take something growing at 4% per year to double
A) 100 years.
B) 72 years.
C) 18 years.
D) 288 years.
111. Using the Rule of 72, how long will it take something growing at 6% per year to double
A) 100 years.
B) 72 years.
C) 12 years.
D) 432 years.
