FINC Exam 2

Ace your homework & exams now with Quizwiz!

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


Related study sets

Unit 4 Responsibilities of Agents

View Set

ACSR 5 - Customer Service and Its Impact

View Set

Quantitative Analysis-WTAMU-1st-Midterm

View Set

NTRS410 Physical aspects of food preparation

View Set

Operations Management Final Exam

View Set

380 EXAM 3 ATI INFECTION STUDY GUIDE

View Set

Chapter 41: Disorders of Endocrine Control of Growth and Metabolism - MLQ

View Set

Chapter 3: Health, Wellness, and Health Disparities

View Set