Question

QUESTION 7

1. Suppose Peter expects to receive $5,000 three years from today. If the interest rate is 4 percent, the present value of $5,000 is approximately _____.

   	a.	$5,025
   	b.	$4,500
   	c.	$4,762
   	d.	$3,429
   	e.	$4,445

5 points   

QUESTION 8

1. If you own a perpetuity of $500 and if the interest rate is 4 percent, then its present value:​

   	a.	​is $2,000.
   	b.	​cannot be determined unless the number of years is known.
   	c.	​is infinite.
   	d.	​is $504.
   	e.	​is $12,500.

5 points   

QUESTION 9

1. If the annual interest rate is 5 percent, _____.​

   	a.	​$90 saved today will be worth $100 after one year
   	b.	​$100 saved today will be worth $105 after one year
   	c.	​$100 saved today will be worth $150 after one year
   	d.	​$100 saved today will be worth $1,000 after one year
   	e.	​$99 saved today will be worth $100 after one year

5 points   

QUESTION 10

1. Everything else remaining constant, a technological breakthrough that increases the marginal productivity of capital will increase the:

   	a.	supply of loanable funds, leading to a lower equilibrium market interest rate.
   	b.	supply of loanable funds, leading to a higher equilibrium market interest rate.
   	c.	demand for loanable funds, leading to a higher equilibrium market interest rate.
   	d.	demand for loanable funds, leading to a lower equilibrium market interest rate.
   	e.	supply of loanable funds, but have no impact on the equilibrium market interest rate.

5 points   

QUESTION 11

1. If a firm can borrow or lend at a 10 percent annual interest rate, it will _____.

   	a.	select only the unit of capital with the highest expected rate of return, assuming it is above 10 percent
   	b.	buy all the units of capital with an expected rate of return below 10 percent
   	c.	buy all the units of capital with an expected rate of return above 10 percent
   	d.	buy all the units of capital with an average rate of return above 0.1 percent
   	e.	buy all the units of capital with an average rate of return below 10 percent

5 points   

QUESTION 12

1. ​ The loanable funds market brings together savers and borrowers to determine the:

   	a.	​market rate of interest.
   	b.	​marginal revenue product of investment.
   	c.	​marginal resource cost of investment.
   	d.	​rate of time preference.
   	e.	​marginal rate of return on investment.

5 points   

QUESTION 13

1. ​ Other things constant, the more profitable a corporation, _____.

   	a.	​the lower the interest rate that would have to be paid on new bond issues; the value of its shares on the stock market does not vary
   	b.	​the lower the value of its shares on the stock market and the lower the interest rate that would have to be paid on new bond issues
   	c.	​the higher the value of its shares on the stock market and the lower the interest rate that would have to be paid on new bond issues
   	d.	​the lower the value of its shares on the stock market and the higher the interest rate that would have to be paid on new bond issues
   	e.	​the higher the value of its shares on the stock market and the higher the interest rate it would have to pay on new bond issues

5 points   

QUESTION 14

1. A $100 annuity means _____.​

   	a.	​a person receives more than or less than $100, depending on the interest rate, until an upper limit is reached
   	b.	​$100 is received each year for a certain number of years
   	c.	​$100 is received each year forever
   	d.	​$100 is received in a single year
   	e.	​a person receives more than or less than $100, depending on the interest rate, for a certain number of years

Answer 1

QUESTION 7

Suppose Peter expects to receive $5,000 three years from today. If the interest rate is 4 percent, the present value of $5,000 is approximately –

Answer – e) $4445

Present Value of $5000 = $5000 (1+0.04) ^-3 = $4445

QUESTION 8

If you own perpetuity of $500 and if the interest rate is 4 percent, then its present value:​

Answer – e) $12,500

PW in case of infinity life = A/rate of interest

PW = $500/0.04 = $12,500

QUESTION 9

If the annual interest rate is 5 percent, _____.​

Answer – b) $100 saved today will be worth $105 after one year

FV = 100 (1+0.05) ¹ = 105

QUESTION 10

Everything else remaining constant, a technological breakthrough that increases the marginal productivity of capital will increase the:

Answer – c) demand for loanable funds, leading to a higher equilibrium market interest rate