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Interest Rates Overview Chapter Exam

Exam Instructions:

Choose your answers to the questions and click 'Next' to see the next set of questions. You can skip questions if you would like and come back to them later with the yellow "Go To First Skipped Question" button. When you have completed the practice exam, a green submit button will appear. Click it to see your results. Good luck!

Page 1

Question 1 1. In a typical yield to maturity formula, what does 'n' represent?

Question 2 2. In a typical yield to maturity formula, what does 'C' represent?

Question 3 3. Helen expects to receive $2000 in six months. Her bank offers loans at an annual rate of 5.60%. How much could she borrow now if she wants to be able to pay off the entire loan (including interest) with the $2000 she will receive in six months?

Question 4 4. Sean needs to borrow $1000 to fly to Europe in the summer. His friend Tim offers him a loan over two years, at an annual interest rate of 4%. He can also borrow the same amount from his bank at an annual rate of 5%, but the loan needs to be paid back in 18 months. In addition, his cousin offers to loan him the $1000, provided that Sean pay her back $1100 in two years. Which of the following statements is true?

Question 5 5. Which of the following is FALSE regarding real interest rates?

Page 2

Question 6 6. A money market account at the bank offers a 4% nominal interest rate, while inflation is expected to be 3%. What is the real interest rate for this account?

Question 7 7. If the yield on short-term securities is greater than the yield on comparable long-term securities, the yield curve is

Question 8 8. Which is true about liquidity premium theory of the term structure of interest rates?

Question 9 9. Which of the following statements is TRUE of a normal yield curve?

Question 10 10. What is the formula for finding a bond yield?

Page 3

Question 11 11. Which of the following is a benchmark interest rate commonly used to set rates?

Question 12 12. Which statement BEST summarizes the general history of interest rates?

Question 13 13. Becky deposits $12,000 into an account with an interest rate of 7% that is compounded monthly. Rounding to the nearest dollar, what is the balance after 7 years?

Question 14 14. Which of the following is the correct formula for compound interest?

Question 15 15. Which of the following is a reason a lender would encourage a consumer to accept an adjustable rate mortgage?

Page 4

Question 16 16. What is the primary difference between a fixed and variable loan?

Question 17 17. Why does the effective annual rate often differ from that which the company advertises?

Question 18 18. Your beginning balance is $1200. With an APR of 12 percent, what is your balance at the end of the year if calculations are done on a monthly basis?

Question 19 19. A bond that the company will buy and sell to make a profit is considered a _____ security.

Question 20 20. The two requirements for an investment to be considered short-term are _____ and _____.

Page 5

Question 21 21. If a couple saves $5,000 a year for five years at 5% interest, what is the future value of this annuity after those 5 years?

Question 22 22. If Martha puts $100 in the bank today at 6%, how much will she have in three years?

Question 23 23. Angela invested $4000 in an account that earns 5% interest yearly (simple interest). She forgets about it for 12 years. What is the TOTAL amount of money in the account after those 12 years?

Question 24 24. Arnold invested $7000 in his account and he had $8050 after 4 years. What was the yearly interest rate (simple interest)?

Question 25 25. How will an increase in national saving affect the real interest rate and therefore investment?

Page 6

Question 26 26. What is the most important determinant of saving?

Question 27 27. Which of these is another term for yield to maturity?

Question 28 28. Sam borrows $800 from the local bank, at an annual rate of 6.85%. The loan period is 37 weeks. How much money will he have to pay back at the end of the loan?

Question 29 29. In order to adjust a nominal interest rate for inflation, which of the following formula should be used?

Question 30 30. If the yield on long-term securities is greater than the yield on comparable short-term securities, the yield curve is

Interest Rates Overview Chapter Exam Instructions

Choose your answers to the questions and click 'Next' to see the next set of questions. You can skip questions if you would like and come back to them later with the yellow "Go To First Skipped Question" button. When you have completed the practice exam, a green submit button will appear. Click it to see your results. Good luck!

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