29 Jun uestion MULTIPLE CHOICE QUESTIONS
uestion
MULTIPLE CHOICE QUESTIONS
5.2 The Determinants of Interest Rates
3)
Which of the following statements is false?
A)
The yield curve changes over time.
B)
The formulas for computing present values of annuities and perpetuities cannot be used in situations in which cash flows need to be discounted at different rates.
C)
We can use the term structure to compute the present and future values of a risk-free cash flow over different investment horizons.
D)
The yield curve tends to be inverted as the economy comes out of a recession.
Skill: Conceptual
6)
Which of the following formulas is incorrect?
A)
i = – 1
B)
1 + rr =
C)
rr ? i – r
D)
rr=
7)
If the current inflation rate is 5%, then the nominal rate necessary for you to earn an 8% real interest rate on your investment is closest to:
A)
13.0%
B)
13.4%
C)
4.9%
D)
3.0%
Answer:
B
8)
If the current inflation rate is 4% and you have an investment opportunity that pays 10%, then the real rate of interest on your investment is closest to:
A)
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