FINC Exam 2
Lance deposits $2,000 per year at the end of the year for the next 15 years into an IRA account that currently pays 7%. How much will Lance have on deposit at the end of the 15 years? pick the closest answer
$50,258
The present value of an annuity of %5,000 to be received at the end of every six months for 6 years at a 4% annual rate would be
$52,877
You need %8,000 four years from now for a down payment on your future house. How much money must you deposit today if your credit union pays 5% interest compounded annually? Pick the closest answer
$6,581.62
Gavin deposits $5,000 in a five-year certificate of deposit paying 6% compounded semi-annually. How much will Gavin have at the end of the five-year period? Pick the closest answer
$6,720
Jonathan borrows $10,500 from the bank at 11 percent annually compounded interest to be repaid in six equal annual installments, with the payments being made at the end of each year. The loan balance at the end of the second year is
$7,700.17
$100 is received at the beginning of year 1, $200 is received at the beginning of year 2, and $300 is received at the beginning of year 3. If each of these cash flows is deposited at 12 percent on the day they are received, their combined future value at the end of year 3 is
$727.37
Taylor deposits $2,000 per year at the end of the year for the next 20 years into an IRA account that pays 6%. How much will Taylor have on deposit at the end of 20 years? Pick the closest answer
$73,572
The future value of an ordinary annuity of $1,000 each quarter for 10 years, deposited at 12 percent compounded quarterly is
$75,401
assume that a bank receives a primary deposit of $1,000. if the reserve requirement is 25%, what will be the amount of excess reserves available from this primary deposit for lending purposes
$750
Kristen has just purchased a used Mercedes for $18,995. She plans to make a $2,500 down payment on the car. What is the amount of her monthly payment on the loan if she must pay 12% annual interest on a 24-month car loan? Pick the closest answer
$776.48
Jonathan borrows $10,500 from the bank at 11 percent annually compounded interest to be repaid in six equal annual installments, with the payments being made at the end of each year. The amount paid toward interest in the first year's payment is
$1,155
What would be the future value of a CD of $1,000 for two years if the bank offered a 10% interest rate compounded semiannually? Pick the closest answer
$1,216
Megan puts $1,000 in a savings passbook that pays 4% compounded quarterly. How much will she have in her account after five years? Pick the closest answer
$1,220.20
If $1,000 were invested now at a 12% interest rate compounded annually, what would be the value of the investment in two years? pick the closest answer
$1,254
if a customer makes new deposits of $10,000 to a bank and the reserve requirement is 15%, then excess reserves will be
$8,500
assume that a banking system must keep reserves of 20% agains deposits. the bank receives a primary deposit of $20,000. what would be the maximum amount of new loans that could be made by the system for this primary deposit
$80,000
if personal consumption expenditures are $1 billion, government purchases are $2 billion, gross private domestic investments are $4 billion and net exports are $5 billion, then GDP is
$12 billion
Megan is planning for her son's college education to begin five years from today. Megan estimates the yearly tuition to be $5,000 per year for a four-year degree. Tuition must be paid at the beginning of each year. How much must Megan deposit today, at an interest rate of 8 percent, for her son to be able to withdraw $5,000 per year for four years of college
$12,173
The future value of $100 received today and deposited at 6 percent compounded semiannually for four years is: Pick the closest answer
$126.67
Taylor has just accepted a job as a stockbroker. He estimates his gross pay each year for the next three years is $35,000 in year 1, $21,000 in year 2, and $32,000 in year 3. His gross pay is received at the end of each year. Calculate the present value of these cash flows, if they are discounted at 4%. Pick the closest answer
$81,517.10
You want to buy a Volvo in seven years. The car is currently selling for $50,000, and the price will increase at a compound rate of 10% per year. For the next seven years you can make deposits in an account earning 14% per year compounded annually. How much must you deposit at the end of each of the next seven years to be able to pay cash for your dream car in seven years? Pick the closest answer
$9,080.20
Jonathan borrows $10,500 from the bank at 11 percent annually compounded interest to be repaid in six equal annual installments, with the payments being made at the end of each year. The loan balance at the end of the first year is
$9,173.09
Lance plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 20 years. If he can earn 12 percent on his contributions, how much will he have at the end of the twentieth year? Pick the closest answer
$144,105
Gavin makes annual end-of-year payments of $5,043.71 on a four-year loan with an interest rate of 13 percent. The original principal amount was
$15,002
If personal consumption expenditures are $6 billion, government purchases are $10 billion, gross private domestic investments are $4 billion and net exports are negative $3 billion, then GDP is
$17 billion
Gavin wishes to accumulate $1 million by making equal annual end-of-year deposits over the next 20 years. If he can earn 10 percent on his investments, how much mush he deposit at the end of each year?
$17,460
A hospital received a contribution to its endowment fund of $2 million. The hospital can never touch the principal, but it can use the earnings. At an assumed interest rate of 9.5 percent, How much can the hospital earn to help its operation each year?
$190,000
$2,000 invested today at 6% in 3 years would result in a future value of: Pick the closest answer
$2,382
Lance would like to send his parents on a cruise for their 50th wedding anniversary. He expects the cruise will cost %15,--- and he has 5 years to accumulate this money. How much must Lance deposit at the end of each year in an account paying 10 percent interest in order to have enough money to send his parents on the cruise?
$2,457
Your put $2,000 in an IRA account at Northern Trust. This account pays a fixed interest rate of 8% compounded quarterly. How much money do you have in five years? Pick the closest answer
$2,972
in a simple financial system, if the reserve requirement is 25% and $5,000 is injected into the banking system, the maximum expansion in the money supply would be
$20,000
Kristen plans to start her college education four years from now. To pay for her college education, she has decided to save $1,000 at the end of each quarter for the next four years in a bank account paying 12 percent interest compounded quarterly. How much will she have at the end of the fourth year
$20,157
A ski chalet in Vail now costs $250,000. Inflation is expected to cause this price to increase at 5 percent per year over the next 10 years before Larry and his wife retire from successful investment banking careers. How large an equal annal end-of-year deposit must be made into an account paying the annual rate of interest of 13 percent in order to buy the ski chalet upon retirement
$22,108
If you will receive $100 per year with the first payment one year from now for a period of three years with a 12% discount rate, what would be the value of your investment today? Pick that closest answer
$240
The future value of $200 received today and deposited at 8 percent for three years is: Pick the closest answer
$251.94
The future value of $200 received today and deposited for three years in an account which pays 8 percent interest compounded quarterly is ______
$253.65
An investment will mature in 20 years. Its maturity value is $1,000. If the discount rate is 7%, what is present value of the investment? Pick the closest answer
$258
The present value of an annuity of $5,000 to be received at the end of each of the 6 years at a discount rate of 4% would be (pick the closest answer)
$26,211
The present value of an annuity of $5,000 to be received at the beginning of each of the 6 years at a discount rate of 4% would be: Pick the closest answer
$27,259
If personal consumption expenditures are $8 billion, government purchases are $12 billion, gross private domestic investments are $6 billion, exports are $7 billion, and imports are $5 billion, then GDP is
$28 billion
If personal consumption expenditures are $8 billion, retained earnings are $3 billion, government purchases are $12 billion, federal income taxes are $4 billion, gross private domestic investments are %6 billion, exports are $7 billion, gross dividends are $7 billion, and imports are $5 billion, then GDP is
$28 billion
An ordinary annuity of $5,000 invested at 8% in 5 years would result in a future value of (Pick the closest answer)
$29,333
A generous benefactor to the local university plans to make a one-time endowment which would provide the university with $150,000 per year into perpetuity. The rate of interest is expected to be 5 percent for all future time periods. How large must the endowment be?
$3,000,000
The present value of $1,000 received at the end of year 1, $1,200 received at the end of year 2, and $1,300 received at the end of year 3, assuming an opportunity cost of 7 percent, is
$3,043.90
Suppose you were going to save $1,000 per year for three years at a 10% interest rate compounded annually, with the first investment occurring today. What would be the future value of this investment? Pick the closest answer
$3,641
You borrow $10,000 to pay for your college tuition. The loan is amortized over a three-year period with an interest rate of 18%. The payments are made at the end of each year. What is your remaining balance at the end of Year Two? Pick the closest answer
$3,898
Collin plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 10 years. If Collin can earn 10 percent on his contributions, how much will he have at the end of the tenth year?
$31,875
Shannon plans to fund his individual retirement account (IRA) with the maximum contribution of $2,500 at the end of each year for the next 30 years. If Shannon can earn 10 percent on his contributions, how much will he have at the end of the tenth year?
$39,844
assume that a bank must keep reserves of 20% against deposits. The bank receives a primary deposit of %50,000. calculate the amount of excess reserves available from this primary deposit for lending purposes
$40,000
You have just won the lottery! You will receive $50,000 a year beginning one year from now for 20 years. If your required rate of return is 10%, what is the present value of your winning lottery ticket? Pick the closest
$425,700
When the amount earned on a deposit becomes part of the principal at the end of a period and can earn a return in future periods, this is called
compound interst
The budget-making process is carried out by
congress and the president
the monetary base
consists of bank reserves, plus currency held by the public
the accumulation of reserves in insurance and pension funds is referred to as what type of savings?
contractual savings
_____ occurs when prices are raised to cover rising production costs, such as wages
cost-push inflation
budgetary deficits always have the effect of
creating governmental competition for private investment funds
capital formation refers to the
creation of physical productive dacilities
the basic sources of loanable funds are
current savings and the creation of new funds through the expansion of credit by depository institutions
a basic source of loanable funds is
current savings that flow through financial institutions
in individuals believe their income will decrease in the near future, they most likely will _____ their spending
curtail
A high level of inflation
discourages investment by increasing the uncertainty about future returns
What yield curve shape is depicted if intermediate-term treasury securities yield 10 percent, short-term treasuries yield 10.5 percent and long-term treasuries yield 9.5 percent
downward sloping
in fall 2008, the U.S. congress and President George W. Bush responded to the financial crisis with the passage of the _____ in early october of that year
economic stabilization act
The interest rate that measures the true interest rate when compounding occurs more frequently than once a year is called the
effective annual rate
When compounding more than once a year, the true opportunity costs measure of the interest rate is indicated by the
effective annual rate
which of the following is closely associated with income levels
employment levels
U.S. debt management, which is an important function of the Treasury, is generally designed to
encourage orderly economic growth and stability
during the 2007-2009 financial crisis, _____, who was (were) a major participant in the secondary mortgage markets, was (were) on the verge of financial insolvency and possible collapse in mid-2008
fannie Mae and Freddie mac
sources of loanable funds do not include
federal deficits
One factor that decreases the volume of bank reserves is a decrease in
federal reserve float
select all of the following statements that do not occur when a customer demands additional currency by cashing a check for $500
federal reserve notes decrease
Under required reserves of 20%, the maximum total expansion of checkable deposits (including the initial new primary deposit) is
five times a new primary deposit
gross private domestic investments (GPDI) includes fixed investment in
fixed investment in residential and non-residential structures
a ______ mortgage typically has a fixed interest rate and constant monthly payments over the life of the loan
fixed-rate
under required reserves of 20%, the maximum to which the money supply could be expanded by the banking system is
four times a new primary deposit
when current savings of an economic unit exceed its direct investment in real assets,
funds can be made available to a savings deficit unit
a customer of a bank needs additional currency and cashes a check for $10,000. the reserve requirement is 20%. the bank has no excess reserves. it must
get an additional $8,000 of reserves
Which of the following usually does not influence personal choice of saving medium
government spending on social security
until the end of the nineteenth century, _____ contributed the most to funding to developments in public transportation
government units
which of the following statements is false
gross savings are the profits remaining after tax, and in the case of corporations, after the payment of cash dividends to stockholders.
Junk bonds
have a substantial probability of default
Which of the following statements is false
high short-term treasury interest rates and a downward sloping yield curve in generally perceived as being conductive to future economic expansion
When investors expect higher inflation rates they will require ______ nominal interest rates so that a real rate of return will remain after the inflation
higher
Which of the following statements is correct
income from the obligations of the federal government is exempt from all state and local taxes but is subject to federal and state inheritance, estate, or gift taxes
The four major factors which influence the total amount of savings in any given period
income level, economic expectations, cyclical influences, and the life stage of the individual saver
An increase in the demand for loanable funds, holding supply constant, will cause interest rates to
increase
a decrease in the supply for loanable funds accompanied by an increase in demand will cause interest rates to
increase
a decrease in the supply for loanable funds, holding demand constant, will cause interest rates to
increase
holding demand constant, a decrease in the supply of loanable funds will result in an ____ in interest rates
increase
when referring to an "upward sloping" yield curve, interest rates
increase as maturity increases
One factor that decreases the volume of bank reserve is an
increase in the public's demand for currency to be held outside the banking system
assuming no adjustment on the part of borrowers, an unanticipated increase in inflation should
increase the interest rate on loans
The future value of a dollar _____ as the interest rate increases and its future value _____ the farther in the future is the funds are to be received
increases; increases
If a savings bond can be purchased today for $29.50 and has a maturity value at the end of 25 years of $100, what is the annual rate of return on the bond?
5%
If you expect the inflation premium to be 2%, the default risk premium to be 1% and the real interest rate to be 4%, what interest would you expect to observe in the marketplace on short term treasury securities
6%
In 1976, the average price of a domestic car was $5,100. Twenty years later, in 1996, the average price was $16,600. What was the annual growth rate in the car price over the 20-year period? Pick the closest answer
6.07%
the largest category of tax revenue for the federal government is
individual income taxes
In 1983, the average tuition for one year in the MBA program at the university was $3,600. Thirty years later, in 2013, the average tuition was $27,400. What is the compound annual growth rate in tuition (rounded to the nearest whole percentage) over the 30-year period? Pick the closest answer
7%
if you expect the inflation premium to be 2%, the default risk premium to be 1% and the real interest rate to be 4%, what interest would you expect to observe in the marketplace under the simplest form of market interest rates
7%
Which of the following may accumulate savings
individuals, sometimes corporations and sometimes governmental units
levels of income
inflation rate
Open market operations differ from discounting operations in that they are
initiated by the Federal Reserve
The liquidity preference theory holds that interest rates are determined by the
investor preference for short-term securities
Your college has agreed to give you a $10,000 tuition loan. As part of the agreement, you must repay $12,600 at the end of the three-year period. What interest rate is the college charging?
8%
interest on obligations of the federal government
is not taxable by state or local goverment
Treasury bills are
issued on a discount basis and mature at par
The major factor that determines the volume of savings, corporate as well as individual, is the
level of national income
compensation for those financial debt instruments that cannot be easily converted to cash at prices close to estimated fair market values is terned
liquidity premium
which of the following costs serves to compensate the lender for not being able to quickly convert the loan to cash at a price close to the estimated market value of the loan
liquidity premium
which of the following factors usually influence a person's choice of savings medium
liquidity, degree of safety and return
The loanable funds theory used to explain the level of interest rates holds that interest rates are a function of the supply of
loanable funds and the demand for loanable funds
Which of the following is not considered to be a basic theory used to explain the term structure of interest rates
loanable funds theory
If interest rates increase becasue of a previously unanticipated inflation rate risk, the value of
long-lived fixed-rate debt instruments will decline more than short-lived fixed-rate debt instruments
the yield curve or the term structure of interest rates is typically downward sloping when
long-term treasury interest rates are lower than short-term treasury interest rates
Securities that may be bought and sold through customary market channels are called
marketable government securities
government financing of large budgetary deficits
may crowd out private borrowers
typically the largest category of federal budget outlays in
medicare, social security, and other retirement
banking system reserves plus currency held by the public is referred to as the
monetary base
the money supply (M1) is equal to the monetary base
multiplied by the money multiplier
capital market securities include all of the following except
negotiable certificate of deposit
transactions that affect bank reserves can be initiated by the
nonbank public, federal reserve system and U.S. treasury
which of the following is not true of treasury bonds
noncallable
A high level of inflation
none of the above
Federal Reserve open market operations, setting reserve requirement, and lending to depository institutions are
none of the above
Open market operations differ from discounting operations in that they are
none of the above
When the United States Treasury makes a payment to an individual or business, it usually takes the form of a
none of the above
bank reserves are increased when the treasury
none of the above
currently, the backing for federal reserve notes is primarily in the form of
none of the above
the federal government pays for the services it provides primarily through
none of the above
the largest category of tax revenue for the federal government is
none of the above
the process of ____ which is the process of pooling and packaging mortgage loans into debt securities resulted in the creation of _____
none of the above
Which of the following statements is correct
nonmarketable government securities are those securities that cannot be transferred to other persons or institutions and can be redeemed only by being turned in to the U.S. government
A decrease in the supply for loanable funds accompanied by a decrease in demand will cause interest rates to
not enough information to tell
an increase in the supply for loanable funds accompanied by an increase in demand will cause interest rates to
not enough information to tell
which of the following categories is not considered to be one of the basic economic units in the U.S. financial system
not-for-profit organizations
which of the following transactions or operations is entirely at the initiative of the Federal reserve?
open market operations
Which of the following terms best describes an annuity due?
payment at beginning of year
The personal savings rate is
personal savings as a percentage of disposable personal income
the personal savings rate is calculated as
personal savings divided by disposable personal income
The _____ value of a savings or investment is its amount or value at the current time
present
You need to have $35,000 on hand to buy a new Lexus five years from today. To achieve that goal, you want to know how much you must invest today in a certificate of deposit guaranteed to return you 3% per year. To help determine how much to investment today, you will use
present value of a single lump sum
The time value concept/calculation used in amortizing a loan is
present value of an annuity
the deposit of a check drawn of the Fed that adds new reserves to the bank where it is deposited and to the banking system is called a
primary deposit
a _____ mortgage is a home loan made to a borrower with a relatively high credit score indicating a relatively high likelihood that loan payments will be made when due
prime
which of the following statements is corredt
public borrowing by government is a relatively modern development
as the decade of the 2000s came to a close, the unemployment rate remained at the 10 percent level and continued at high level resulting in the Fed engaging in ____
quantitative easing
changes in the growth rates for money supply and money velocity affect the growth rate in
real economic activity and the rate of inflation
the percentage of deposits that must be held as reserves is called
required reserve ratio
assume that a bank receives a primary deposit of $1,000, and the reserve requirement is 15%. which of the following would reflect the asset side of the balance sheet after a maximum loan amount has just been made
reserves of $1,000 and loans of $850
In an inflationary period, interest rates have a tendency to
rise
if the money supply increases faster than output, prices will
rise
which of the following factors directly impact the level of interest rates
risk, marketability and maturity
motivations for individuals to deposit money into a savings account include
safety of principal, return on investment, and liquidity
when current savings of an economic unit exceed its direct investment in real assets, this is referred to as
savings surplus
_____ is the process of pooling and packaging mortgage loans into debt securities
securitization
greater potential savings would result from a
shift to more middle-aged families
Interest earned only on an investment's principal or original amount is referred to as
simple interest
changes in the money supply or in the amount of metal in the money unit have influenced prices
since the earliest records of civilization
If the stated or nominal interest rate is 10 percent and the inflation rate is 4 percent, the net or differential compounding rate would be _____ percent
six
Automatic stabilizers include all of the following except
social security
Various programs have federal government help stabilize disposable income, and in turn, economic activity in general. in so doing
some programs act on a continuing basis and are described as automatic stabilizers
_____ is caused by the expectation that prices will continue to rise, resulting in increased buying to avoid even higher future prices
speculative inflation
the first two life stages of a typical corporation are the
startup stage and survival stage
a _____ mortgage is a home loan made to a borrower with a relatively poor credit score indicating the likelihood that loan payments might be missed with done
subprime
Long-run inflation expectations in the capital markets can be estimated by
subtracting the real return and maturity risk premium components from the rate on long-term Treasury securities
The federal government pays for the services it provides primarily through
taxation
Suppose you have a choice of two equally risky annuities, each paying $1,000 per year for 20 years. One is annuity due, while the other is an ordinary annuity. Which annuity should you choose?
the annuity due
the government entity responsible for fiscal policy is
the congress and the president
_____ states that interest rates are a function of the supply and demand for loanable funds
the loanable funds theory
select all of the following statements that are correct about the money multiplier
the money multiplier is influenced by the public's switching between checkable and noncheckable deposits at their banks
select all of the following statements that are correct
the multiplying capacity of primary deposits is hindered by cash leakages from the banking system The monetary base is defined as bank reserves plus currency held by the public In contrast to the other transactions that affect reserves in the banking system, open market operations are entirely at the initiative of the federal reserve
debt management includes all of the following except
the required reserves ratio
the life stages of an individual saver include all of the following except
the tax minimizing stage
The relationship between interest rates or yields and the time to maturity for debt instruments of comparable quality is called
the term structure of interest rates
if a check is written for the full amount of a derivative deposit created by a bank loan and then is sent to a bank in another city for depost
the total reserves of the banking system remains the same
which of the following factory affects the supply of loanable funds
the volume of saving, expansion of deposits by banks and attitudes about liquidity
during the 2007-2009 financial crisis, many major financial institutions and business corporations were on the verge of collapse or failure; however, some of the very largest corporations and financial institutions were deemed as being _____ because their failure would cause cascading negative repercussions throughout the U.S. and many foreign economies
too big to fail
Since 2008 more than half of the federal debt has been owned by
total private investors
a saver who chooses securities as a savings medium and desires maximum safety of principal buys
treasury bonds
which one of the following is not a marketable government security
treasury stock
a primary focus of the economic stabilization act of 2008, which became known as the _____, was to allow the U.S. Treasury purchase up to $700 billion of troubled or toxic assets held by financial institutions
troubled asset relief program (TARP)
profits remaining after taxes and after a corporation pays dividends to stockholders is referred to as
undistributed profits (retained earnings)
Examples of automatic stabilizers are
unemployment insurance
As the economy begins moving out of a recessionary period, the yield curve is generally
upward sloaping
Assume that these current yields exist: long-term treasury bonds yield 9 percent, five-year treasury notes yield 8.5 percent, and one-year treasury bills yield 8 percent. What type of yield curve is depicted
upward sloping
Savings are the accumulation of cash and other financial assets and are generally classified into which of the following two categories
voluntary and contractual savings
select all of the following statement that are true
when taxes and general revenues fail to meed expenditures, a budgetary deficit occurs
Select all of the following statements that are false
The effective annual rate is determined by multiplying the interest rate charged per period by the number of periods in a year
Select all of the following theories that are commonly used to explain the term structure of interest rates
The expectations theory The market segmentation theory The liquidity preference theory
select all of the following that are a determinant of market interest rates
The inflation premium The maturity risk premium The real rate of interest
select all of the following that occur, in general, during the business cycle, when economic activity is peaking
Unemployment levels are low Inflation begins to edge higher The Fed rises short-term interest rates higher to slow the economy
select all of the following statements that are true. Bank reserves in the banking system consist of
Vault cash held at commercial banks and other depository institutions Reserve deposits held at federal reserve banks by commercial banks and other depository institutions
which of the following statements is correct
a downward sloping yield curve implies that treasury securities with long-term maturities have lower interest rates relative to similar quality securities with short-term maturities
The U.S. banking system has the ability to alter the size of the money supply because of the use of
a fractional reserve system
The risk-free interest rate is composed of
a real rate of interest and an inflation premium
A maturity risk premium at a certain point in time may be expressed by comparing the interest rates on
a treasury bill and a treasury bont
the default risk premium at a certain point in time may be expressed by comparing the interest rates on
a treasury bond and a long-term high quality bond of a large corporation
_____ is the tendency of prices, aided by union-corporation contracts, to rise during economic expansions and resist declines during recessions
administrative inflation
Which statement about inflation is incorrect
administrative inflation occurs when the Fed lowers the prime rate
federal reserve open market operations, setting reserve requirement, and lending to depository institutions are
all designed to have their effect by influencing the reserves of depository institutions
debt management of the federal government includes
all of the above
bank reserves are not affected by
all of the above affect bank reserves
The primary factors that influence the amount of savings in any given period include all of the following except
all of the above are factors that influence savings
Groups of policy makers that are actively involved in achieving U.S. economic policy objectives include all of the following except
all of the above are policy makers
the "perfect financial storm" that developed in 2008, which put the U.S. economy on the verge of collapse, was characterized by all of the following except
all of the above were factors
in an effort to stimulate economic activity, congress and the president passed the $787 billion _____ in feburary, 2009 with the funds to be used to provide tax relief, appropriations, and direct spending
american recovery and reinvestment act of 2009
A loan that is repaid in equal payments over a specified time period is called an
amortized loan
A loan that is repaid in equal payments over a specified time period is referred to as an
amortized loan
A series of equal payments or receipts that occur at the beginning of each of a number of time periods is referred to as
an annuity due
The interest rate determined by multiplying the interest rate charged per period by the number of periods in a year is called the
annual percentage rate
the method of calculating interest on a loan that is set by law is called the
annual percentage rate (APR)
the short-term accumulation of financial assets on the part of business corporations
are held in short-term financial assets that are save and liquid
when referring to a "downward sloping"' yield curve
as maturities shorten, interest rates rise
In future value or present value problems, unless stated otherwise, cash flows are assumed to be
at the end of the time period
continuing federal programs that stabilize economic activity are called
automatic stabilizers
a country's economic policy actions are directed toward all of the following goals except
balance in the federal budget
Which of the following is typically a savings deficit unit
businesses and government
Larry deposited $5,000 in a savings account that pain 8% interest compounded quarterly. What is the effective annual rate of interest?
8.24%
Consolidated Freightways in financing a new truck with a loan of $60,000 to be repaid in six annual end-of-year installments of $13,375. What annual interest rate is Consolidated Freightways paying? pick the closes answer
9%
an _____ has an interest rate that changes or varies over time with market-determined interest rates on a U.S. treasury bill or other debt security
ARM
select all of the following that are true of treasury bills
Are issued with maturities of up to one year Are issued on a discount basis Mature at par
Taylor owns stock in a company which has consistently paid a growing dividend over the last 10 years. At the end of the first year Taylor owned the stock, he received $4.50 per share and at the end of the 10th year, he received $4.92 per share. What is the growth rate of the dividends during this time
1%
You deposit $1,000 in a long-term certificate of deposit with an interest rate of 8.81%. How many years will it take for you to triple your deposit? Pick the closest answer
13 years
If you have an account with a 21.5% annual percentage rate where interest is compounded quarterly, what is the effective annual rate of interest? Pick the closest answer
23.3%
As interest rates rise, the price of existing bonds will
Fall
select all of the following who encouraged individuals to enter into risky mortgages during the 2000's
Financial institution lenders Government-supported agencies Mortgage originators Government officials
Your current bank is paying 6.25% simple interest rate. You can move your savings account to Harris Bank that pays 6.25% compounded annually or to First Chicago bank paying 6% compounded semi-annually. To maximize your return you would choose
First Chicago bank
Select all of the following variables you would not enter into your financial calculator to calculate the future value five years from today of $2,500 deposited today
Future value (FV) Inflation rate (I) Payments (PMT)
Select all of the following that are examples of personal consumption expenditures (PCE)
Individual expenditures for durable goods Individual expenditures for nondurable goods Individual expenditures for services
Select all of the following that are not examples of personal consumption expenditures (PCE)
Individual savings Imports
The basic price that equates the demand for and supply of loanable funds in the financial markets is the _____
Interest rate
Select all of the following that are factors that usually influence a person's choice of the medium used for savings
Liquidity Degree of safety Return
select all of the following statements that are correct
Marketable U.S. government securities are mainly sold through dealers and have interest payments that are federally taxable
During the 2007-2009 financial crisis, some of the very largest financial institutions were deemed as being "too big to fail" because their failure would cause cascading negative repercussions throughout the U.S. and many foreign economies. as a result, the federal reserve
Moved to increase liquidity in the monetary system and reduce its target federal funds rate to below .25 percent Worked with the U.S. treasury to help facilitate the merging of financially weak institutions with institutions that were financially stronget
select all of the following that are part of the sum that is gross domestic product
Personal consumption expenditures Net exports Government expenditures Gross private domestic investments
Select all of the following that are variables used in your financial calculator for time value of money calculations for a single lump sum of money
Present Value (PV) Future value (FV) Interest rate (I/Y) Number of periods (N)
select all of the following statements that are true
Required reserves are the minimum amount of total reserves that a depository institution must hold The ability to predict M1 velocity, in addition to money supply changes, is important in achieving successful monetary policy making A derivative deposit occurs when reserves created by a primary deposit are made available to borrowers through bank loans
If the nominal rate of interest is 10%, the real rate of interest is 3%, the default premium is 2%, the liquidity premium is .5%, and the maturity premium is 1.5%, then the inflation premium must be
3%
As interest rates fall, the price of existing bonds will
Rise
Your subscription to Consumer Reports is about to expire. You may renew it for $24 a year or, instead, you may get a lifetime subscription to the magazine for a onetime payment of $403 today. Payments for the regular subscription are made at the beginning of each year. Using a discount rate of 5%, how many years does it take to make the lifetime subscription the better deal? Pick the closest answer.
33 years
Jonathan borrows $10,500 from the bank at 11 percent annually compounded interest to be repaid in six equal annual installments, with the payments being made at the end of each year. The amount paid toward the principal in the first year's payment is
$1,326.91
Olivia borrows $4,500 at 12 percent annually compounded interest to be repaid in four equal annual installments. The actual end-of-year payment is
$1,482
Assume that a borrower is willing to pay you $2,000 at the end of three years in return for a sum of money now. To receive a return of 10%, what is the most you should be willing to lend now? Pick the closest answer
$1,503
The present value of an ordinary annuity of $350 each year for five years, assuming an opportunity cost of 4 percent, is
$1,558.14
A wealthy inventor has decided to endow her favorite art museum by establishing funds for an endowment which would provide $1,000,000 per year forever. She will fund the endowment upon her fiftieth birthday 10 years from today. She plans to accumulate the endowment by making annual end-of-year deposits into an account. The rate of interest is expected to be 5 percetn in all future periods. How much mush the scientist deposit each year to accumulate to the required amount?
$1,590,091
Assume a lender offers you a $25,000, 10%, three-year loan that is to be fully amortized with three annual payments. The first payment will be due one year from the loan date. How much will you have to pay at the end of each year? Pick the closest answer
$10,053
If the nominal rate of interest is 8%, the real rate of interest is .75%, the risk-free rate of interest is 2%, the default premium is 4%, the liquidity premium is .5%, and the maturity premium is 1.5%, then the inflation premium must be
1.25%
Claire bought 100 shares of Minnesota Mining and Manufacturing in June, 197 for $38 a share for a total investment of $3,800. She sold the shares in June, 1996 for $8,960. What is Cecilia's annual rate of return on her investment? Pick the closest
10%
If the quarterly rate of interest is 2.5% and interest is compounded quarterly, then the APR is: Pick the closest answer
10.00%
If the quarterly rate of interest is 2.5% and interest is compounded quarterly, then the EAR is: Pick the closest answer
10.38%
If the APR is 12% and interest is compounded monthly, then the EAR is: Pick the closest answer
12.68%
What is the highest effective annual rate attainable with a 12 percent nominal rate?
12.72%
Shelby was given a gold coin originally purchased for $1 by her great-grandfather 50 years ago. Today the coin is worth $450. The rate of return realized on the sale of this coin is approximately equal to
13%
If you earn 3% compounded semiannually on your deposit of $200, it will take approximately ___ years before you have $300
13.6
Megan owns stock in a company which has consistently paid a growing dividend over the last five years. At the end of the first year Megan owned the stock, she received $1.71 per share and at the end of the fifth year, she received $2.89 per share. What is the growth rate of the dividends during this time?
14%
Suppose you receive $3,000 a year in Years One Through Four, $4,000 a year in Years Five through Nine, and $2,000 in Year 10, with all the money to be received at the end of the year. If your discount rate is 12%, what is the present value of these cash flows? Pick the closest answer
18,926.12
What is the real rate of interest if the nominal rate of interes is 15%, the IP is 5%, the DRP is 3%, the MRP is 4%, and the LP is 1%
2%
Assume your bank has a choice between two deposit accounts. Account A has an annual percentage rate of 4.62 percent with interest compounded monthly. Account B has an annual percentage rate of 4.62 percent but with interest compounded quarterly. Which account provides the highest effective annual return?
Account A
Assume your bank has a choice between two deposit accounts. Account A has an annual percentage rate of 7.55 percent with interest compounded monthly. Account B has an annual percentage rate of 7.45 percent with interest compounded quarterly. Which account provides the higher effective annual return?
Account A
Which of the following statements is correct
Advance refunding is one of the new debt-management techniques used to extend the average maturity of the marketable debt without disturbing the financial markets and occurs when the Treasury offers the owners of a given issue the opportunity to exchange their holdings well in advance of the holdings' regular maturity for new securities of longer maturity.
select all of the following statements that were factors that contributed to the 2007-2009 financial crises
All of them
Investment grade bonds have ratings of _____ or higher
Baa
select all of the following that are the primary providers of adequate funds to meet investment needs
Businesses Individuals
Select all of the following that are variables used in your financial calculator for time value of money calculations for an annuity
Present value (PV) Future value (FV) Interest rate (I/Y) Number of periods (N) Payments (PMT) Begin/end mode (BGN/END)
A famous athlete is awarded a contract that stipulates equal payments to be made at the end of each month over a period of five years. To determine the value of the contract today, you would use
Present value of an ordinary annuity
Select all of the following statements that are true
The Present value of the future sum decreases as the discount rate increases If the present value of a sum is equal to its future value, the interest rate much be zero If the discount (or interest) rate is positive, the future value of an expected series of payments will always exceed the present value of the same series
Select all of the following statements that are not descriptive of an amortization schedule?
The same dollar amount of interest is paid with each payment.
Federal obligations usually issured for maturities up to one year are called
Treasury bills
Federal obligations usually issued for maturities in excess of ten years are called
Treasury bonds
Federal obligations usually issued for maturities of one to ten years are called
Treasury notes
in our financial system, the money multiplier
can fluctuate over time
if the nominal interest rate for treasury bonds is 8% and the risk-free rate is 3%, the expected inflation rate must be
cannot be determined without additional information
which of the following is not a stage in the corporation cycle
capital formation stage
which of the following is the most liquid form of savings
cash balance
When the United States Treasury makes a payment to an individual or business, it usually takes the form of a
check drawn on a Federal Reserve bank
Almost all treasury disbursements are made by
checks drawn against deposits at federal reserve banks
which of the following is not a stage in the individual savings life cycle
death planning
The U.S. Treasury is primarily responsible for
debt management
a decrease in the demand for loanable funds, holding supply constant, will cause interest rates to
decrease
an increase in the supply for loanable funds accompanied by a decrease in demand will cause interest rates to
decrease
an increase in the supply for loanable funds, holding demand constant, will cause interest rates to
decrease
holding demand constant, an increase in the supply of loanable funds will result in a ____in tnteres rates
decrease
holding supply constant, a decrease in the demand of loanable funds will result in a _____ in interest rates
decrease
all else the same, a trade deficit
decreases GDP
the average maturity of the marketable debt in the United States
decreases day by day unless new obligations are issued to offset such decreases
Bank reserves are increased when the treasury
decreases its holding of cash
The risk that a borrower will not pay interest and/or repay the principal on a loan or other debt instrument according to the agreed contractual terms is
default risk
total bank reserves do not include which of the following
deficit reserves
_____ occurs when there is an excessive demand for goods and services as a result of large increases in the money supply
demand-pull inflation
inflation caused by an excessive demand for goods and services as a result of large increases in the money supply
demand-pull inflation
estimates of "using up" plant and equipment for business purposes are called
depreciation
which of the following statements is correct
derivative deposits occur when reserves created from primary deposits are made available through bank loans to borrowers
Which of the following expenditures typically accounts for the largest part of the federal budget outlays
direct benefits to individuals
