tb_chap04

# tb_chap04 - Chapter4 UnderstandingInterestRates 4.1...

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Chapter 4 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 Ques Status: Previous Edition 2) With an interest rate of 6 percent, the present value of \$100 next year is approximately A) \$106. B) \$100. C) \$94. D) \$92. Answer: C Ques Status: Previous Edition 3) 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 Ques Status: New 4) If a security pays \$55 in one year and \$133 in three years, its present value is \$150 if the interest rate is A) 5 percent. B) 10 percent. C) 12.5 percent. D) 15 percent. Answer: B Ques Status: Revised

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Chapter 4 Understanding Interest Rates 75 5) 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 Ques Status: New 6) To claim that a lottery winner who is to receive \$1 million per year for twenty years has won \$20 million ignores the concept of A) face value. B) par value. C) deflation. D) discounting the future. Answer: D Ques Status: Revised 7) The interest rate that equates the present value of payments received from a debt instrument with its value today is the A) simple interest rate. B) current yield. C) yield to maturity. D) real interest rate. Answer: C Ques Status: Revised 8) 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 Ques Status: Revised
76 Mishkin · Economics of Money, Banking, and Financial Markets , Eighth Edition 9) 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 Ques Status: Previous Edition 10) A credit market instrument that provides the borrower with an amount of funds that must be repaid at the maturity date along with an interest payment is known as a A) simple loan. B) fixed - payment loan. C) coupon bond. D) discount bond. Answer: A Ques Status: Previous Edition 11) 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 Ques Status: Previous Edition 12) 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 Ques Status: Revised

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Chapter 4 Understanding Interest Rates 77 13) For a 3 - year simple loan of \$10,000 at 10 percent, the amount to be repaid is A) \$10,030. B) \$10,300.
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## tb_chap04 - Chapter4 UnderstandingInterestRates 4.1...

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