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Unformatted text preview: ECONOMICS 389 – MIDTERM 1 Sample for Spring, 2010 Answer all questions. For full credit you must show all your work. Part I. Completion Questions 1. The ( higher/lower ) the interest rate the higher will be the future value. 2. The perpetuity and the annuity formulas assume that the first payment occurs at the ( beginning/end ) of the initial period. 3. The amount of interest received each year by the bondholder is called the ( ). 4. The ( ) is the discount rate that makes the present value of the bond payments equal to its market price. 5. As interest rates rise the market prices of bonds ( ). Part II. Multiple Choice 1. How much interest is earned in the fourth year on a $1,000 deposit that earns 8% interest compounded quarterly? a. $ 80.14 b. $100.78 c. $104.55 d. $160.00 2. What is the effective annual rate for a loan with an APR of 15% and semiannually payments? a. 15.56% b. 16.08% c. 18.48% d. 19.56% 1 3. How much more is a perpetuity of $1,000 worth than an annuity of the same amount for 30 years if the interest rate is 8%?same amount for 30 years if the interest rate is 8%?...
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 Spring '08
 Chen,J
 Economics, Interest Rates, Time Value Of Money

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