Interest Rates, Rate Changes, & Risk Structure 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. The Fed's monetary policy has the greatest effect on real Gross Domestic Product under what set of conditions?

Question 2 2. If all other factors remain equal, what would happen to interest rates when the amount of money circulating in the economy is increased?

Question 3 3. If you take out a loan for $50,000 with a maturity date of 5 years and will pay $10,000 in interest, what is the annual nominal interest rate?

Question 4 4. If you know the principal of the loan, the interest due on the loan at maturity, and the applicable unit of time for calculating interest, what formula can you use to calculate the interest rate?

Question 5 5. Which of the following provides a loan to a company or government?

Page 2

Question 6 6. How is real interest calculated?

Question 7 7. Two strategies for mitigating interest rate risk that don't depend on the types of bonds purchased are:

Question 8 8. The primary reason to use financial futures contracts in hedging strategies is:

Question 9 9. When interest rates are 20%, the demand for money is:

Question 10 10. Money demand varies depending on what factors?

Page 3

Question 11 11. The real interest rate for a consumer loan is 5%, and the expected inflation rate is 3%. What is the nominal interest rate on this consumer loan?

Question 12 12. 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 13 13. According to this lesson, what is the definition of the Federal Funds Rate?

Question 14 14. How is the Federal Funds Rate used?

Question 15 15. Which one of the following is the best explanation of the nominal interest rate?

Page 4

Question 16 16. You loan a friend $10,000 at a 5% rate of interest for one year. Inflation for the year is 3%. What's the real rate of interest?

Question 17 17. In 1970, McDonald's Big Mac costs around $0.50. By early 2015, the price of the sandwich was at $4.79. This change in cost is an example of:

Question 18 18. Which of the following is NOT a factor in the determination of an interest rate on borrowed money?

Question 19 19. Arnold invested $7000 in his account and he had $8050 after 4 years. What was the interest rate?

Question 20 20. Steve is trying to earn $300 in interest for a new guitar. He puts $2500 in an account that earns 2% interest. How long will it take to earn $300?

Page 5

Question 21 21. Which is true about the segmented markets theory?

Question 22 22. Which of the statements is correct about the expectations theory to the term structure of interest rates?

Question 23 23. What kinds of loans are associated with long-term interest rates?

Question 24 24. Of the following, which are you most likely to loan money to with the lower interest rate if any at all?

Question 25 25. Which of the following accurately describes the discount rate?

Page 6

Question 26 26. Why is the Fed referred to as 'the lender of last resort'?

Question 27 27. How does an increase in the money supply impact economic output within the US economy?

Question 28 28. What's the formula for a lender to set it's nominal interest rate?

Question 29 29. Which of the following provides ownership in the most companies?

Question 30 30. Two types of bonds that were designed to eliminate reinvestment rate risk are:

Interest Rates, Rate Changes, & Risk Structure 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!

Finance 303: Financial Institutions & Markets  /  Business Courses
Support