Assuming the same coupon rate and maturity length, when the interest rate on a Treasury Inflation Protected Security is 3 percent, and the yield on a nonindexed Treasury bond is 8 percent, the expected rate of inflation is

Assuming the same coupon rate and maturity length, when the interest rate on a Treasury Inflation Protected Security is 3 percent, and the yield on a nonindexed Treasury bond is 8 percent, the expected rate of inflation is

A) 3 percent.
B) 5 percent.
C) 8 percent.
D) 11 percent.

Answer: B

Assuming the same coupon rate and maturity length, the difference between the yield on a Treasury Inflation Protected Security and the yield on a non indexed Treasury security provides insight into

Assuming the same coupon rate and maturity length, the difference between the yield on a Treasury Inflation Protected Security and the yield on a non indexed Treasury security provides insight into

A) the nominal interest rate.
B) the real interest rate.
C) the nominal exchange rate.
D) the expected inflation rate.

Answer: D

The interest rate on Treasury Inflation Protected Securities is a direct measure of

The interest rate on Treasury Inflation Protected Securities is a direct measure of 

A) the real interest rate.
B) the nominal interest rate.
C) the rate of inflation.
D) the rate of deflation.

Answer: A

If the nominal rate of interest is 2 percent, and the expected inflation rate is -10 percent, the real rate of interest is

If the nominal rate of interest is 2 percent, and the expected inflation rate is -10 percent, the real rate of interest is

A) 2 percent.
B) 8 percent.
C) 10 percent.
D) 12 percent.

Answer: D

If you expect the inflation rate to be 12 percent next year and a one -year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is

If you expect the inflation rate to be 12 percent next year and a one -year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is

A) -5 percent.
B) -2 percent.
C) 2 percent.
D) 12 percent.

Answer: A

In which of the following situations would you prefer to be borrowing?

In which of the following situations would you prefer to be borrowing? 

A) The interest rate is 9 percent and the expected inflation rate is 7 percent.
B) The interest rate is 4 percent and the expected inflation rate is 1 percent.
C) The interest rate is 13 percent and the expected inflation rate is 15 percent.
D) The interest rate is 25 percent and the expected inflation rate is 50 percent.

Answer: D

In which of the following situations would you prefer to be the lender?

In which of the following situations would you prefer to be the lender? 

A) The interest rate is 9 percent and the expected inflation rate is 7 percent.
B) The interest rate is 4 percent and the expected inflation rate is 1 percent.
C) The interest rate is 13 percent and the expected inflation rate is 15 percent.
D) The interest rate is 25 percent and the expected inflation rate is 50 percent.

Answer: B

When the ________ interest rate is low, there are greater incentives to ________ and fewer incentives to ________.

When the ________ interest rate is low, there are greater incentives to ________ and fewer incentives to ________.

A) nominal; lend; borrow
B) real; lend; borrow
C) real; borrow; lend
D) market; lend; borrow

Answer: C

If you expect the inflation rate to be 15 percent next year and a one -year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is

If you expect the inflation rate to be 15 percent next year and a one -year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is

A) 7 percent.
B) 22 percent.
C) -15 percent.
D) -8 percent.

Answer: D

The ________ interest rate more accurately reflects the true cost of borrowing.

The ________ interest rate more accurately reflects the true cost of borrowing. 

A) nominal
B) real
C) discount
D) market

Answer: B

The nominal interest rate minus the expected rate of inflation

The nominal interest rate minus the expected rate of inflation 

A) defines the real interest rate.
B) is a less accurate measure of the incentives to borrow and lend than is the nominal interest rate.
C) is a less accurate indicator of the tightness of credit market conditions than is the nominal interest rate.
D) defines the discount rate.

Answer: A

The ________ states that the nominal interest rate equals the real interest rate plus the expected rate of inflation.

The ________ states that the nominal interest rate equals the real interest rate plus the expected rate of inflation.

A) Fisher equation
B) Keynesian equation
C) Monetarist equation
D) Marshall equation

Answer: A

Prices and returns for ________ bonds are more volatile than those for ________ bonds, everything else held constant.

Prices and returns for ________ bonds are more volatile than those for ________ bonds, everything else held constant.

A) long-term; long-term
B) long-term; short-term
C) short-term; long-term
D) short-term; short-term

Answer: B

Interest-rate risk is the riskiness of an asset's returns due to

Interest-rate risk is the riskiness of an asset's returns due to 

A) interest-rate changes.
B) changes in the coupon rate.
C) default of the borrower.
D) changes in the asset's maturity.

Answer: A

The riskiness of an asset's returns due to changes in interest rates is

The riskiness of an asset's returns due to changes in interest rates is 

A) exchange-rate risk.
B) price risk.
C) asset risk.
D) interest-rate risk.

Answer: D

Which of the following are generally true of all bonds?

Which of the following are generally true of all bonds?

A) The longer a bond's maturity, the greater is the rate of return that occurs as a result of the increase in the interest rate.
B) Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise.
C) Prices and returns for short-term bonds are more volatile than those for longer term bonds.
D) A fall in interest rates results in capital losses for bonds whose terms to maturity are longer than the holding period.

Answer: B

Which of the following are generally true of bonds?

Which of the following are generally true of bonds?

A) The only bond whose return equals the initial yield to maturity is one whose time to maturity is the same as the holding period.
B) A rise in interest rates is associated with a fall in bond prices, resulting in capital gains on bonds whose terms to maturity are longer than the holding periods.
C) The longer a bond's maturity, the smaller is the size of the price change associated with an interest rate change.
D) Prices and returns for short-term bonds are more volatile than those for longer-term bonds.

Answer: A

Which of the following are true concerning the distinction between interest rates and returns?

Which of the following are true concerning the distinction between interest rates and returns? 

A) The rate of return on a bond will not necessarily equal the interest rate on that bond.
B) The return can be expressed as the difference between the current yield and the rate of capital gains.
C) The rate of return will be greater than the interest rate when the price of the bond falls between time t and time t + 1.
D) The return can be expressed as the sum of the discount yield and the rate of capital gains.

Answer: A

An equal increase in all bond interest rates

An equal increase in all bond interest rates 

A) increases the return to all bond maturities by an equal amount.
B) decreases the return to all bond maturities by an equal amount.
C) has no effect on the returns to bonds.
D) decreases long-term bond returns more than short-term bond returns.

Answer: D

An equal decrease in all bond interest rates

An equal decrease in all bond interest rates 

A) increases the price of a five-year bond more than the price of a ten-year bond.
B) increases the price of a ten-year bond more than the price of a five-year bond.
C) decreases the price of a five-year bond more than the price of a ten-year bond.
D) decreases the price of a ten-year bond more than the price of a five-year bond.

Answer: B

If the interest rates on all bonds rise from 5 to 6 percent over the course of the year, which bond would you prefer to have been holding?

If the interest rates on all bonds rise from 5 to 6 percent over the course of the year, which bond would you prefer to have been holding?

A) A bond with one year to maturity
B) A bond with five years to maturity
C) A bond with ten years to maturity
D) A bond with twenty years to maturity

Answer: A

Suppose you are holding a 5 percent coupon bond maturing in one year with a yield to maturity of 15 percent. If the interest rate on one-year bonds rises from 15 percent to 20 percent over the course of the year, what is the yearly return on the bond you are holding?

Suppose you are holding a 5 percent coupon bond maturing in one year with a yield to maturity of 15 percent. If the interest rate on one-year bonds rises from 15 percent to 20 percent over the course of the year, what is the yearly return on the bond you are holding?

A) 5 percent
B) 10 percent
C) 15 percent
D) 20 percent

Answer: C

The return on a 5 percent coupon bond that initially sells for $1,000 and sells for $950 next year is

The return on a 5 percent coupon bond that initially sells for $1,000 and sells for $950 next year is

A) -10 percent.
B) -5 percent.
C) 0 percent.
D) 5 percent.

Answer: C

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $900 next year?

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $900 next year?

A) 5 percent
B) 10 percent
C) -5 percent
D) -10 percent

Answer: C

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,200 next year?

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,200 next year?

A) 5 percent
B) 10 percent
C) -5 percent
D) 25 percent

Answer: D

The ________ is defined as the payments to the owner plus the change in a security's value expressed as a fraction of the security's purchase price.

The ________ is defined as the payments to the owner plus the change in a security's value expressed as a fraction of the security's purchase price.

A) yield to maturity
B) current yield
C) rate of return
D) yield rate

Answer: C

If the yield on Treasury bills increases from 6.34 percent to 6.44 percent, the yield has

If the yield on Treasury bills increases from 6.34 percent to 6.44 percent, the yield has 

A) increased by 0.01 basis point.
B) increased by 0.1 basis point.
C) increased by 1 basis point.
D) increased by 10 basis points.

Answer: D

If the yield on Treasury bills falls from 5.27 percent to 5.22 percent, then the yield has

If the yield on Treasury bills falls from 5.27 percent to 5.22 percent, then the yield has 

A) increased by 5 basis points.
B) increased by 0.5 basis point.
C) decreased by 0.5 basis point.
D) decreased by 5 basis points.

Answer: D

To say that a yield increased by twenty basis points means the interest rate increased by

To say that a yield increased by twenty basis points means the interest rate increased by 

A) 20 percent.
B) 2 percent.
C) 0.2 percent.
D) 0.02 percent.

Answer: C

When referring to changes in yields, a basis point equals

When referring to changes in yields, a basis point equals 

A) 10 percent.
B) 1 percent.
C) 0.1 percent.
D) 0.01 percent.

Answer: D

The yield to maturity on a $10,000 Treasury bill selling for $9,800 with 73 days to maturity is approximately

The yield to maturity on a $10,000 Treasury bill selling for $9,800 with 73 days to maturity is approximately

A) 2 percent.
B) 5 percent.
C) 10 percent.
D) 20 percent.

Answer: C

The yield on a discount basis of a 180-day $1,000 Treasury bill selling for $900 is

The yield on a discount basis of a 180-day $1,000 Treasury bill selling for $900 is 

A) 10 percent.
B) 20 percent.
C) 25 percent.
D) 40 percent.

Answer: B

The yield on a discount basis of a 90-day, $1,000 Treasury bill selling for $950 is

The yield on a discount basis of a 90-day, $1,000 Treasury bill selling for $950 is 

A) 5 percent.
B) 10 percent.
C) 15 percent.
D) 20 percent.

Answer: D

Dealers in T-bills make profits by selling T-bills at a ________ price than they pay for them, thus, the ________ discount yield should be lower than the ________ discount yield.

Dealers in T-bills make profits by selling T-bills at a ________ price than they pay for them, thus, the ________ discount yield should be lower than the ________ discount yield.

A) higher; bid; asked
B) higher; asked; bid
C) lower; bid; asked
D) lower; asked; bid

Answer: B

A problem with the yield on discount basis is that it ________ the yield to maturity, and this ________ increases, the ________ the maturity of the discount bond.

A problem with the yield on discount basis is that it ________ the yield to maturity, and this ________ increases, the ________ the maturity of the discount bond.

A) understates; understatement; longer
B) understates; understatement; shorter
C) overstates; overstatement; longer
D) overstates; overstatement; shorter

Answer: A

Which of the following are true of the yield on a discount basis as a measure of the interest rate?

Which of the following are true of the yield on a discount basis as a measure of the interest rate?

A) It uses the percentage gain on the purchase price of the security, rather than the percentage gain on the face value of the security.
B) It puts the yield on the annual basis of a 360-day year.
C) It ignores the time to maturity.
D) It overstates the yield to maturity.

Answer: B

If this security sold for $2200, the yield to maturity is less than 5%. The lower the interest rate the higher the present value. Dealers in U.S. Treasury securities always refer to prices by quoting the

If this security sold for $2200, the yield to maturity is less than 5%. The lower the interest rate the higher the present value. Dealers in U.S. Treasury securities always refer to prices by quoting the 

A) yield to maturity.
B) coupon rate.
C) current yield
D) yield on a discount basis.

Answer: D

If the interest rate is 5%, what is the present value of a security that pays you $1, 050 next year and $1,102.50 two years from now? If this security sold for $2200, is the yield to maturity greater or less than 5%? Why?

If the interest rate is 5%, what is the present value of a security that pays you $1, 050 next year and $1,102.50 two years from now? If this security sold for $2200, is the yield to maturity greater or less than 5%? Why?

PV = $1,050/(1. +.05) + $1,102.50/(1 + 0.5)2 PV = $2,000

In Japan in 1998, interest rates were negative for a short period of time because investors found it convenient to hold six-month bills as a store of value because

In Japan in 1998, interest rates were negative for a short period of time because investors found it convenient to hold six-month bills as a store of value because

A) of the high inflation rate.
B) these bills sold at a discount from face value.
C) the bills were denominated in small amounts and could be stored electronically.
D) the bills were denominated in large amounts and could be stored electronically.

Answer: D

A discount bond selling for $15,000 with a face value of $20,000 in one year has a yield to maturity of

A discount bond selling for $15,000 with a face value of $20,000 in one year has a yield to maturity of

A) 3 percent.
B) 20 percent.
C) 25 percent.
D) 33.3 percent.

Answer: D

If a $5,000 face-value discount bond maturing in one year is selling for $5,000, then its yield to maturity is

If a $5,000 face-value discount bond maturing in one year is selling for $5,000, then its yield to maturity is

A) 0 percent.
B) 5 percent.
C) 10 percent.
D) 20 percent.

Answer: A

If a $10,000 face-value discount bond maturing in one year is selling for $5,000, then its yield to maturity is

If a $10,000 face-value discount bond maturing in one year is selling for $5,000, then its yield to maturity is

A) 5 percent.
B) 10 percent.
C) 50 percent.
D) 100 percent.

Answer: D

Which of the following are true for discount bonds?

Which of the following are true for discount bonds? 

A) A discount bond is bought at par.
B) The purchaser receives the face value of the bond at the maturity date.
C) U.S. Treasury bonds and notes are examples of discount bonds.
D) The purchaser receives the par value at maturity plus any capital gains.

Answer: B

The yield to maturity for a one-year discount bond equals the increase in price over the year, divided by the

The yield to maturity for a one-year discount bond equals the increase in price over the year, divided by the

A) initial price.
B) face value.
C) interest rate.
D) coupon rate.

Answer: A

Examples of discount bonds include

Examples of discount bonds include 

A) U.S. Treasury bills.
B) corporate bonds.
C) U.S. Treasury notes.
D) municipal bonds.

Answer: A

A discount bond

A discount bond 

A) pays the bondholder a fixed amount every period and the face value at maturity.
B) pays the bondholder the face value at maturity.
C) pays all interest and the face value at maturity.
D) pays the face value at maturity plus any capital gain.

Answer: B

A ________ is bought at a price below its face value, and the ________ value is repaid at the maturity date.

A ________ is bought at a price below its face value, and the ________ value is repaid at the maturity date.

A) coupon bond; discount
B) discount bond; discount
C) coupon bond; face
D) discount bond; face

Answer: D

A bond that is bought at a price below its face value and the face value is repaid at a maturity date is called a

A bond that is bought at a price below its face value and the face value is repaid at a maturity date is called a

A) simple loan.
B) fixed-payment loan.
C) coupon bond.
D) discount bond.

Answer: D

If a console has a price of $500 and an annual interest payment of $25, the interest rate is

If a console has a price of $500 and an annual interest payment of $25, the interest rate is 

A) 2.5 percent.
B) 5 percent.
C) 7.5 percent.
D) 10 percent.

Answer: B

A consol paying $20 annually when the interest rate is 5 percent has a price of

A consol paying $20 annually when the interest rate is 5 percent has a price of 

A) $100.
B) $200.
C) $400.
D) $800.

Answer: C

The interest rate on a console equals the

The interest rate on a console equals the 

A) price times the coupon payment.
B) price divided by the coupon payment.
C) coupon payment plus the price.
D) coupon payment divided by the price.

Answer: D

The price of a consol equals the coupon payment

The price of a consol equals the coupon payment 

A) times the interest rate.
B) plus the interest rate.
C) minus the interest rate.
D) divided by the interest rate.

Answer: D

Which of the following bonds would you prefer to be buying?

Which of the following bonds would you prefer to be buying? 

A) A $10,000 face-value security with a 10 percent coupon selling for $9,000
B) A $10,000 face-value security with a 7 percent coupon selling for $10,000
C) A $10,000 face-value security with a 9 percent coupon selling for $10,000
D) A $10,000 face-value security with a 10 percent coupon selling for $10,000

Answer: A

The yield to maturity is ________ than the ________ rate when the bond price is ________ its face value.

The yield to maturity is ________ than the ________ rate when the bond price is ________ its face value.

A) greater; coupon; above
B) greater; coupon; below
C) greater; perpetuity; above
D) less; perpetuity; below

Answer: B

Which of the following $5,000 face-value securities has the highest to maturity?

Which of the following $5,000 face-value securities has the highest to maturity? 

A) A 6 percent coupon bond selling for $5,000
B) A 6 percent coupon bond selling for $5,500
C) A 10 percent coupon bond selling for $5,000
D) A 12 percent coupon bond selling for $4,500

Answer: D

Which of the following $1,000 face-value securities has the lowest yield to maturity?

Which of the following $1,000 face-value securities has the lowest yield to maturity? 

A) A 5 percent coupon bond selling for $1,000
B) A 10 percent coupon bond selling for $1,000
C) A 15 percent coupon bond selling for $1,000
D) A 15 percent coupon bond selling for $900

Answer: A

Which of the following $1,000 face-value securities has the highest yield to maturity?

Which of the following $1,000 face-value securities has the highest yield to maturity? 

A) A 5 percent coupon bond with a price of $600
B) A 5 percent coupon bond with a price of $800
C) A 5 percent coupon bond with a price of $1,000
D) A 5 percent coupon bond with a price of $1,200

Answer: A

Which of the following $1,000 face-value securities has the highest yield to maturity?

Which of the following $1,000 face-value securities has the highest yield to maturity? 

A) A 5 percent coupon bond selling for $1,000
B) A 10 percent coupon bond selling for $1,000
C) A 12 percent coupon bond selling for $1,000
D) A 12 percent coupon bond selling for $1,100

Answer: C

A $10,000 8 percent coupon bond that sells for $10,000 has a yield to maturity of

A $10,000 8 percent coupon bond that sells for $10,000 has a yield to maturity of 

A) 8 percent.
B) 10 percent.
C) 12 percent.
D) 14 percent.

Answer: A

The price of a coupon bond and the yield to maturity are ________ related; that is, as the yield to maturity ________, the price of the bond ________.

The price of a coupon bond and the yield to maturity are ________ related; that is, as the yield to maturity ________, the price of the bond ________.

A) positively; rises; rises
B) negatively; falls; falls
C) positively; rises; falls
D) negatively; rises; falls

Answer: D

An $8,000 coupon bond with a $400 coupon payment every year has a coupon rate of

An $8,000 coupon bond with a $400 coupon payment every year has a coupon rate of 

A) 5 percent.
B) 8 percent.
C) 10 percent.
D) 40 percent.

Answer: A

If a $5,000 coupon bond has a coupon rate of 13 percent, then the coupon payment every year is

If a $5,000 coupon bond has a coupon rate of 13 percent, then the coupon payment every year is

A) $650.
B) $1,300.
C) $130.
D) $13.

Answer: A

Which of the following are true for a coupon bond?

Which of the following are true for a coupon bond?

A) When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate.
B) The price of a coupon bond and the yield to maturity are positively related.
C) The yield to maturity is greater than the coupon rate when the bond price is above the par value.
D) The yield is less than the coupon rate when the bond price is below the par value.

Answer: A

All of the following are examples of coupon bonds except

All of the following are examples of coupon bonds except 

A) Corporate bonds
B) U.S. Treasury bills
C) U.S. Treasury notes
D) U.S. Treasury bonds

Answer: B

The ________ is the final amount that will be paid to the holder of a coupon bond.

The ________ is the final amount that will be paid to the holder of a coupon bond. 

A) discount value
B) coupon value
C) face value
D) present value

Answer: C

A ________ pays the owner a fixed coupon payment every year until the maturity date, when the ________ value is repaid.

A ________ pays the owner a fixed coupon payment every year until the maturity date, when the ________ value is repaid.

A) coupon bond; discount
B) discount bond; discount
C) coupon bond; face
D) discount bond; face

Answer: C

A credit market instrument that pays the owner a fixed coupon payment every year until the maturity date and then repays the face value is called a

A credit market instrument that pays the owner a fixed coupon payment every year until the maturity date and then repays the face value is called a

A) simple loan.
B) fixed-payment loan.
C) coupon bond.
D) discount bond.

Answer: C

A fully amortized loan is another name for

A fully amortized loan is another name for 

A) a simple loan.
B) a fixed-payment loan.
C) a commercial loan.
D) an unsecured loan.

Answer: B

Which of the following are true of fixed payment loans?

Which of the following are true of fixed payment loans? 

A) The borrower repays both the principal and interest at the maturity date.
B) Installment loans and mortgages are frequently of the fixed payment type.
C) The borrower pays interest periodically and the principal at the maturity date.
D) Commercial loans to businesses are often of this type.

Answer: B

A credit market instrument that requires the borrower to make the same payment every period until the maturity date is known as a

A credit market instrument that requires the borrower to make the same payment every period until the maturity date is known as a

A) simple loan.
B) fixed-payment loan.
C) coupon bond.
D) discount bond.

Answer: B

If $22,050 is the amount payable in two years for a $20,000 simple loan made today, the interest rate is

If $22,050 is the amount payable in two years for a $20,000 simple loan made today, the interest rate is

A) 5 percent.
B) 10 percent.
C) 22 percent.
D) 25 percent.

Answer: A

For a 3-year simple loan of $10,000 at 10 percent, the amount to be repaid is

For a 3-year simple loan of $10,000 at 10 percent, the amount to be repaid is 

A) $10,030.
B) $10,300.
C) $13,000.
D) $13,310.

Answer: D

If the amount payable in two years is $2420 for a simple loan at 10 percent interest, the loan amount is

If the amount payable in two years is $2420 for a simple loan at 10 percent interest, the loan amount is

A) $1000.
B) $1210.
C) $2000.
D) $2200.

Answer: C

For simple loans, the simple interest rate is ________ the yield to maturity.

For simple loans, the simple interest rate is ________ the yield to maturity. 

A) greater than
B) less than
C) equal to
D) not comparable to

Answer: C

A credit market instrument that provides the borrower with an amount of funds that must be repaid at the maturity date along with an interest payment is known as a

A credit market instrument that provides the borrower with an amount of funds that must be repaid at the maturity date along with an interest payment is known as a

A) simple loan.
B) fixed-payment loan.
C) coupon bond.
D) discount bond.

Answer: A

If a security pays $110 next year and $121 the year after that, what is its yield to maturity if it sells for $200?

If a security pays $110 next year and $121 the year after that, what is its yield to maturity if it sells for $200?

A) 9 percent
B) 10 percent
C) 11 percent
D) 12 percent

Answer: B

Economists consider the ________ to be the most accurate measure of interest rates.

Economists consider the ________ to be the most accurate measure of interest rates. 

A) simple interest rate.
B) current yield.
C) yield to maturity.
D) real interest rate.

Answer: C

The interest rate that equates the present value of payments received from a debt instrument with its value today is the

The interest rate that equates the present value of payments received from a debt instrument with its value today is the

A) simple interest rate.
B) current yield.
C) yield to maturity.
D) real interest rate.

Answer: C

To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million ignores the concept of

To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million ignores the concept of

A) face value.
B) par value.
C) deflation.
D) discounting the future.

Answer: D

An increase in the time to the promised future payment ________ the present value of the payment.

An increase in the time to the promised future payment ________ the present value of the payment.

A) decreases
B) increases
C) has no effect on
D) is irrelevant to

Answer: A

If a security pays $55 in one year and $133 in three years, its present value is $150 if the interest rate is

If a security pays $55 in one year and $133 in three years, its present value is $150 if the interest rate is

A) 5 percent.
B) 10 percent.
C) 12.5 percent.
D) 15 percent.

Answer: B

The present value of an expected future payment ________ as the interest rate increases.

The present value of an expected future payment ________ as the interest rate increases. 

A) falls
B) rises
C) is constant
D) is unaffected

Answer: A

With an interest rate of 6 percent, the present value of $100 next year is approximately

With an interest rate of 6 percent, the present value of $100 next year is approximately 

A) $106.
B) $100.
C) $94.
D) $92.

Answer: C

The concept of ________ is based on the common-sense notion that a dollar paid to you in the future is less valuable to you than a dollar today.

The concept of ________ is based on the common-sense notion that a dollar paid to you in the future is less valuable to you than a dollar today.

A) present value
B) future value
C) interest
D) deflation

Answer: A