chapUnderstandingInterestRates.docVIP

 PAGE 19 The Economics of Money, Banking, and Financial Markets, 9e (Mishkin) 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) 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: Previous Edition 3) 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: Previous Edition 4) 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 5) 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: Previous Edition 6) To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million ignores the process of A) face value. B) par value. C) deflation. D) discounting the future. Answer: D Ques Status: Revised 7) 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 8) A credit market instrument that requires the borrower to make the same payment every period until the maturity date is known as a A) simple loan. B) fixed-payment loan. C) coupon bond. D) discount bond. Answer: B Ques Status: Previous Edition 9) Which of the following are true of fixed payment loans