Money Banking and Financial Markets Stephen Cecchetti 5th Edition – Test Bank

Money Banking and Financial Markets Stephen Cecchetti 5th Edition – Test Bank

Chapter 04

Future Value, Present Value, and Interest Rates

Multiple-Choice Questions

1.  A promise of a $100 payment to be received one year from today is:

a. more valuable than receiving the payment today.

b. less valuable than receiving the payment two years from now.

c. equally valuable as a payment received today if the interest rate is zero.

d. not enough information is provided to answer the question.

Ans: C

Difficulty: 02 Medium

Learning Objective: 04-01

AACSB: Reflective Thinking

Blooms: Understand

Topic: Valuing Monetary Payments Now and in the Future

2.  The future value of $100 at a 5% per year interest rate at the end of one year is:

a. $95.00

b. $105.00

c. $97.50

d. 107.50

Ans: B

Difficulty: 03 Hard

Learning Objective: 04-01

AACSB:  Knowledge Application

Blooms: Apply

Topic: Valuing Monetary Payments Now and in the Future

3. Credit:

a. probably came into being at the same time as coinage.

b. predates coinage by 2,000 years.

c. did not exist until the Middle Ages.

d. first became popular due to the writings of Aristotle.

Ans: B

Difficulty: 01 Easy

Learning Objective: 04-01

AACSB: Reflective Thinking

Blooms: Remember

Topic: Valuing Monetary Payments Now and in the Future

4.  Which of the following expresses 5.65%?

a. 0.565

b. 0.00565

c. 5.65

d. 0.0565

Ans: D

Difficulty: 01 Easy

Learning Objective: 04-01

AACSB: Reflective Thinking

Blooms: Remember

Topic: Valuing Monetary Payments Now and in the Future

5.  Which of the following expresses 4.85%?

a. 0.0485

b. 4.850

c. 0.00485

d. 0.485

Ans: A

Difficulty: 01 Easy

Learning Objective: 04-01

AACSB: Reflective Thinking

Blooms: Remember

Topic: Valuing Monetary Payments Now and in the Future

6.  Which of the following expresses 5.5%?

a. 0.0055

b. 5.50

c. 0.550

d. 0.0550

Ans: D

Difficulty: 01 Easy

Learning Objective: 04-01

AACSB: Reflective Thinking

Blooms: Remember

Topic: Valuing Monetary Payments Now and in the Future

7.  If the interest rate is zero, a promise to receive a $100 payment one year from now is:

a. more valuable than receiving $100 today.

b. less valuable than receiving $100 today.

c. equal in value to receiving $100 today.

d. equal in value to receiving $101 today.

Ans: C

Difficulty: 02 Medium

Learning Objective: 04-01

AACSB: Reflective Thinking

Blooms: Understand

Topic: Valuing Monetary Payments Now and in the Future

8.  If a saver has a positive rate of time preference then the present value of $100 to be received 1 year from today is:

a. more than $100.

b. not calculable.

c. less than 100.

d. unknown to the saver.

Ans: C

Difficulty: 02 Medium

Learning Objective: 04-01

AACSB: Reflective Thinking

Blooms: Understand

Topic: Valuing Monetary Payments Now and in the Future

9.  Which of the following best expresses the proceeds a lender receives from a one-year simple loan when the annual interest rate equals i?

a. PV + i

b. FV/i

c. PV(1 + i)

d. PV/i

Ans: C

Difficulty: 02 Medium

Learning Objective: 04-02

AACSB: Reflective Thinking

Blooms: Understand

Topic: Valuing Monetary Payments Now and in the Future