1 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

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

• A) falls

• B) rises

• C) is constant

• D) is unaffected

3 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

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

• A) $106.

• B) $100.

• C) $94.

• D) $92

5 What is the present value of $500.00 to be paid in two years if the interest rate is 5 percent?

• 1. A) $453.51

• 2. B) $500.003.

• 3. C) $476.25

• 4. D) $550.00

6 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.

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

• A) face value.

• B) par value

• C) deflation.

• D) discounting the future.

8 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.

9 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.

10 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.