Ch 16

Chapter 16 Interest Rates, Investment, and Capital Markets

MULTIPLE CHOICE

Choose the one alternative that best completes the statement or answers the question.

1) Suppose a person has a discount rate of zero. This implies that she

A) places no value on the future.

B) places no value on the present.

C) values the present and the future equally.

D) would not lend money at any positive interest rate.

Answer: C

Diff: 0

Topic: Comparing Money Today to Money in the Future

2) Suppose two people with the same level of income and wealth have different discount rates. Joe has a very high discount rate and Jim has a very low discount rate. Which one of the following is TRUE?

A) Joe is more likely to borrow than Jim.

B) Joe is less likely to borrow than Jim.

C) Joe and Jim will borrow the same amount.

D) Neither Joe nor Jim would be borrowers.

Answer: A

Diff: 1

Topic: Comparing Money Today to Money in the Future

3) Interest rates are positive mainly because

A) of inflation.

B) people tend to prefer the present to the future.

C) people tend to prefer the future to the present.

D) bankers are greedy.

Answer: B

Diff: 1

Topic: Comparing Money Today to Money in the Future

4) If you place $100 in a bank account that pays 6% at the end of each year, and you

leave your $100 and all your interest in the bank, how much will you have in the bank at the end of 7 years with annual compounding?

A) (106)7.

B) 7 * (106).

C) 100 * (1.60)7.

D) 100 * (1.06)7.

Answer: D

Diff: 1

Topic: Comparing Money Today to Money in the Future

5) If you invest $500 today, and the value one year from today is $1000, then the

annual interest rate must be

A) 10%.

B) 50%.

C) 100%.

D) 200%.

Answer: C

Diff: 1

Topic: Comparing Money Today to Money in the Future

6) For a given rate of interest, the total interest you receive from lending money

A) increases with the frequency of...