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An investor deposits $400 into a bank account that earns an annual interest rate of 8%.Based on this information, how much interest will he earn during the second year alone?


A) $25.60
B) $32
C) $34.56
D) $64

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The future value of $200 that is left in account earning 6.5% interest for three years is best expressed by which of the following?


A) $200(1.065) × 3
B) $200(1.065) /3
C) $200(1.065) n
D) $200(1.065) 3

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Which of the following expresses 4.85%?


A) 0.0485
B) 4.850
C) 0.00485
D) 0.485

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Discussions in recent years about the vulnerability of the Social Security System cause some people to feel the payments promised will not materialize.Discuss the possible changes we might observe now.

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If people working now begin to question ...

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A borrower who makes a $1000 loan for one year and earns interest in the amount of $75, earns what nominal interest rate and what real interest rate if inflation is two percent?


A) A nominal rate of 5.5% and a real rate of 2.0%.
B) A nominal rate of 7.5% and a real rate of 5.0%.
C) A nominal rate of 7.5% and a real rate of 9.5%.
D) A nominal rate of 7.5% and a real rate of 5.5%.

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The value of $100 left in a savings account earning 5% a year, will be worth what amount after ten years?


A) $150.00
B) $160.50
C) $159.84
D) $162.89

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During the early 1980s, the U.S.economy experienced an increase in interest rates quoted on U.S.Treasury debt, business loans, and mortgages.At the same time the inflation rate gradually declined more than expected.What happened to ex ante versus ex post real interest rates during this period? Use the Fisher equation to support your answer.

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The Fisher equation is: i = r + πe.The F...

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One hundred basis points could be expressed as:


A) 0.01%
B) 1.00%
C) 100.0%
D) 0.10%

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A saver knows that if she put $95 in the bank today she will receive $100 from the bank one year from now, including the interest she will earn.What is the interest rate she is earning?


A) 5.10%
B) 6.00%
C) 5.52%
D) 5.26%

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A monthly interest rate of 1% is a compounded annual rate of:


A) 12.68%
B) 10.00%
C) 14.11%
D) 6.00%

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Which of the following expresses 5.5%?


A) 0.0055
B) 5.50
C) 0.550
D) 0.0550

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Considering the data on real and nominal interest rates for the U.S.from 1979 to 2012, which of the following statements is most accurate?


A) The real interest rate remains unchanged over time.
B) There have been times when the real interest rate has been negative.
C) Nominal interest rates higher in 2000 than they had been at any other point in time.
D) The inflation rate is always greater than the real interest rate.

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Higher savings usually requires higher interest rates because:


A) everyone prefers to save more instead of consuming.
B) saving requires sacrifice and people must be compensated for this sacrifice.
C) higher savings means we expect interest rates to decrease.
D) of the rule of 72.

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A change in the interest rate:


A) has a smaller impact on the present value of a payment to be made far into the future than on one to be made sooner.
B) will not make a difference in the present values of two equal payments to be made at different times.
C) has a larger impact on the present value of a payment to be made far into the future than on one to be made sooner.
D) has a larger impact on the present value of a bigger payment to be made far into the future than on one of lesser value.

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According to the rule of 72:


A) any amount should double in value in 72 months if invested at 10%.
B) 72/interest rate is the number of years approximately it will take for an amount to double.
C) 72 × interest rate is the number of years it will take for an amount to double.
D) the interest rate divided by the number of years invested will always equal 72%.

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What is the monthly interest rate if you are asked to convert a 12 percent annual rate to a monthly rate (calculate to 4 decimal places)?

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It is not as simple as dividing 12 perce...

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Suppose a family wants to save $60,000 for a child's tuition.The child will be attending college in 18 years.For simplicity, assume the family is saving for a one-time college tuition payment.If the interest rate is 6%, then about how much does this family need to deposit in the bank today?


A) $10,000
B) $21,000
C) $42,000
D) $57,000

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Explain why an increase in expected inflation will result in an increase in nominal interest rates, holding other factors constant.

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This follows from the Fisher equation th...

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An investment grows from $2,000 to $2,750 over the period of 10 years.What average annual growth rate will produce this result?

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First we determine the overall percentag...

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Explain why, if real interest rates are so important, we see most interest rates quoted in nominal terms.

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It is almost impossible to quote real in...

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