Question 1

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An individual should undertake an investment if:

Select one:

a. the present value of the revenue stream generated by the investment is

less than the present value of the cost of the investment.

b. the internal rate of return is greater than the market interest rate. 

c. always less than the market interest rate.

d. the internal rate of return is less than the market interest rate.

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The correct answer is: the internal rate of return is greater than the market interest rate.

Question 2
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People with a high discount rate will require:
Select one:

a. A Higher Interest Rate To Entice Them To Save.

b. A Lower Interest Rate To Entice Them To Save.

c. Investment Options With Longer Maturities. 

d. Above All

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The correct answer is: A Higher Interest Rate To Entice Them To Save.

Question 3
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When the interest rate rises, the price of discount bonds will:

Select one:

a. Fall 

b. Remain unchanged.

c. This cannot be determined without additional information.

d. Rise

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The correct answer is: Fall
Question 4
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If the internal rate of return from an investment is less than the opportunity cost of funds

Select one:

a. the firm should only make the investment using retained earnings.

b. the firm should not make the investment. 

c. None of the above.

d. the firm should make the investment.

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The correct answer is: the firm should not make the investment.

Question 5
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The real interest rate is approximately equal to:

Select one:
a. Nominal Interest Rate – The Expected Inflation Rate. 

b. Nominal Interest Rate + The Expected Inflation Rate.

c. Nominal Interest Rate X Price Index.

d. Nominal Interest Rate / Price Index.

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The correct answer is: Nominal Interest Rate – The Expected Inflation Rate.

Question 6
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It is generally easier to reduce idiosyncratic risk than systematic risk by risk spreading.

Select one:

True 

False

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The correct answer is 'True'.

Question 7
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An increase in the interest rate causes the price of discount bonds to rise.

Select one:

True

False 

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The correct answer is 'False'.

Question 8
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Inflation target.

Question 9
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Creditors benefit from an unexpected increase in the inflation rate.

Select one:

True 

False

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The correct answer is 'True'.

Question 10
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Risks that are unique to specific people, assets, or firms, are called:

Select one:

a. Idiosyncratic Risks. 

b. Idiopathic Risks.

c. Systematic Risks.

d. Sycophantic Risks.
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The correct answer is: Idiosyncratic Risks.

Question 11
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The present value of a future payment is, ceteris paribus, higher when the:

Select one:

a. Size Of The Future Payment Is Smaller.

b. Interest Rate Rises.

c. All Of The Above Are Correct.

d. Payment Is Received Sooner. 

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The correct answer is: Payment Is Received Sooner.

Question 12
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Briefly discuss Base rate.

Question 13
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What is the Central bank?

Question 14
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Which of the following best expresses the payment a lender receives for lending his
or her money for four years?

Select one:

a. 4PV
b. PV/(1 + i)4

c. PV(1+i)4 

d. Above All

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The correct answer is: PV(1+i)4

Question 15
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Comparing two investments with the same expected value, the investment with
the largest variance in payoffs is less risky.

Select one:

True

False 

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The correct answer is 'False'.

Question 16
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What is Financial stability?

Question 17
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An increase in the interest rate causes the present value of any given future payment
to decline.

Select one:

True 

False

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The correct answer is 'True'.

Question 18
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Which formula below best expresses the nominal interest rate, (i)?
Select one:

a. i = r - Πe

b. r = i + Πe

c. Πe = i + r

d. i = r + Πe 

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The correct answer is: i = r + Πe

Question 19
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The longer the time (n) until the payment:

Select one:

a. The Lower The Present Value. 

b. The Higher The Present Value Because Time Is Valuable.

c. None Of The Above.

d. The Lower Must Be The Interest Rate.

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The correct answer is: The Lower The Present Value.

Question 20
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The present value of a future payment is:

Select one:

a. the same as the future value.

b. the amount that has to be given up today to receive the future value at the specified future
date.

c. All of the above are correct. 

d. always greater than the future value.

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The correct answer is: the amount that has to be given up today to receive the future value at
the specified future date.

Question 21
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The sum of the probabilities for all possible outcomes of an investment:

Select one:

a. Equals 1. 

b. Will Always Be Greater Than 1.

c. Will Always Be Less Than 1.

d. All of them are correct

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The correct answer is: Equals 1.

Question 22
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A mortgage, where the monthly payments are not the same for the duration of the loan,
is an example of:

Select one:

a. An Installment Loan.

b.
An Equity Security.

c. A Variable Payment Loan. 

d. A Fixed Payment Loan.

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The correct answer is: A Variable Payment Loan.

Question 23
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Discuss the Base Money.

Question 24
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Which of the following statements is incorrect?

Select one:

a. Higher real interest rates are usually associated with higher inflation rates.

b. It is easier to compute the ex post real interest rate than the ex ante real interest rate. 
c. The real interest rate can be negative.

d. Higher nominal interest rates are usually associated with higher inflation

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The correct answer is: Higher real interest rates are usually associated with higher inflation
rates.

Question 25
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The price of a bond is determined by

Select one:

a. taking the present value of the bond's final payment and subtracting the coupon payments.

b. taking the present value of the bond's final payment.

c. taking the present value of the coupon payments and adding this to the face value.

d. taking the sum of the present values of the future payments..

 

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The correct answer is: taking the sum of the present values of the future payments..

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