1.

If the interest rate is 5%, then the present value of $200 to be received one year from now is:

A)

$210.

B)

$205.

C)

$190.47.

D)

$4,000.

2.

According to the concept of present value, $250 today is worth:

A)

less than the sum of $250 in six months.

B)

equal to the sum of $250 in six months.

C)

equal to the sum of $250 in one year.

D)

more than the sum of $250 in six months.

3.

You purchase an annuity when interest rates are 8%. How much do you need to set aside to earn $4,000 every year to pay for your vacation?

A)

$32,000

B)

$50,000

C)

$5,000

D)

$320,000

4.

Suppose the interest rate i is 3% per year. How much is the present value of $1,400 in four years?

A)

$1,243.88

B)

$1,244.60

C)

$1,358.00

D)

$1,575.71

5.

If a business owner spends $15,000 to fund her operations, this is an example of:

A)

entrepreneurship.

B)

financial capital.

C)

human capital.

D)

physical capital.

6.

If a bank reserves the right to repossess an automobile if the car loan is not paid, the car serves as:

A)

collateral.

B)

financial capital.

C)

loanable funds.

D)

physical capital.

7.

The face value of a bond is:

A)

a periodic fixed payment made to a bondholder expressed as a percent of the face value.

B)

the amount that must be repaid to the bondholder upon its maturity.

C)

the date when the face value must be paid to the bondholder.

D)

the current annual return to a bond.

8.

A periodic fixed payment made to a bondholder expressed as a percent of the face value is the bond's:

A)

coupon rate.

B)

cace value.

C)

maturity date.

D)

yield.

9.

If a bond's riskiness increases, then its:

A)

yield increases.

B)

coupon rate increases.

C)

face value increases.

D)

coupon rate decreases.

10.

Bonds are BEST described as a type of:

A)

debt capital.

B)

equity capital.

C)

both debt capital and equity capital.

D)

neither debt capital nor equity capital.

11.

Which of the following is a disadvantage of issuing stock relative to bonds?

A)

Partial ownership in the business is given up.

B)

Stocks are riskier than bonds.

C)

Repayments to stockholders are required.

D)

Losses are shared by all shareholders, not just the business's founder.

12.

In its infancy, the Internet company Google was primarily funded through:

A)

bond issuance.

B)

an initial public offering.

C)

stock issuance to hedge funds.

D)

venture capitalists.

13.

The most common type of short-term debt is:

A)

college loans.

B)

credit card debt.

C)

mortgage debt.

D)

car loans.

14.

If a person borrows $2,000 at 5% interest and never makes any payments, how much will the loan balance be after two years?

A)

$2,005.25

B)

$2,010

C)

$2,200

D)

$2,205

15.

If a person borrows $2,000 at 5% interest and never makes any payments, how much will the loan balance be after five years?

A)

$2,250

B)

$2,500

C)

$2,255.55

D)

$2,552.56

16.

The compounding effect ________ savers and _________ borrowers.

A)

help; hurts

B)

helps; helps

C)

hurts; hurts

D)

hurts; helps

17.

A financial intermediary that provides liquid assets in the form of deposits by savers and uses its funds to finance illiquid investment spending needs of borrowers is a(n):

A)

insurance company.

B)

bank.

C)

pension fund.

D)

hedge fund.

18.

The trade-off between rate of return and liquidity is that assets that offer a ______rate of return also offer ______ liquidity.

A)

higher; higher

B)

lower; lower

C)

higher; lower

D)

There is no trade-off between rate of return and liquidity.

19.

Which of the following are intended to prevent bank runs?

A)

the Sherman Anti-Trust law

B)

regulation Q, which prohibits banks from paying interest on demand deposits

C)

deposit insurance

D)

maturity transformation

20.

Ireland's rapid growth came to a halt in 2008 because:

A)

the potato crop was destroyed by bad weather.

B)

the central bank of Ireland refused to accept the euro.

C)

of a real estate bubble.

D)

of the failures of many shipping companies.