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Commerce and BusinessbackBusinessbackPrinciples of EconomicsbackEconomicsbackPractice Set 2495back

Interest Rates And The Capital Market

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Question 1
Free
Multiple Choice

The concepts of stock and flow are involved in firms' demand for labour and for capital.Which of the following statements is correct?

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A

A firm hires a stock of labour services; and purchases a stock of physical capital,which provides a flow of services.

B

Labour and capital are both flow variables because their values change over time.

C

A firm hires a flow of labour services; and purchases a stock of physical capital,which provides a flow of services.

D

Labour and capital are both stock variables because they are providing service at any given moment in time.

E

A firm's demand for both labour and capital is determined by the marginal value each provides to the stock of labour and capital,respectively.

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Question 2
Free
Multiple Choice

Financial intermediaries are often the "middlemen" between households and firms and,as such,

Choose correct answer/s
A

they reduce the amount of trade by charging high fees for their services.

B

they are not essential for the workings of an economy.

C

they specialize in assessing the risk of various borrowers.

D

are the fundamental determinant of the supply of capital.

E

are the fundamental determinant of the demand for capital.

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Question 3
Free
Multiple Choice

What is the most fundamental purpose of the "capital market"?

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A

To connect the savings decisions of households with the borrowing decisions of firms.

B

To provide the means by which firms can acquire physical capital.

C

To provide the means by which households and firms can invest financial capital.

D

To connect firms and households who wish to borrow with financial institutions.

E

To connect households who wish to borrow with banks who wish to lend.

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Question 4
Free
Multiple Choice

Consider the physical equipment that a printing company would purchase in order to print glossy magazines.The equipment itself is considered a(n) ________ ,while the printing services the equipment provides is considered a(n) ________ .

Choose correct answer/s
A

asset; liability

B

flow; opportunity cost

C

stock; flow

D

retained asset; spent asset

E

flow; stock

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Question 5
Free
Multiple Choice

When we discuss household saving as the supply of capital to financial markets,the term includes which of the following?

Choose correct answer/s
A

households' savings accounts

B

education and retirement savings

C

private-sector pension plans

D

Canada Pension Plan and Quebec Pension Plan

E

all of the above

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Question 6
Multiple Choice

When a firm is making a decision about whether to purchase a new piece of physical capital,it is necessary to evaluate the ________ of services it delivers.The concept of ________ allows the firm to determine how much it would be willing to pay for the new piece of physical capital.

Choose correct answer/s
A
stock; present value
B
flow; future value
C
flow; present value
D
stock; future value
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Question 7
Multiple Choice

A firm must evaluate the value of the services that a piece of capital equipment can deliver to the firm over its lifetime.The firm does this by estimating its

Choose correct answer/s
A
rate of depreciation.
B
marginal product.
C
marginal revenue product.
D
future value.
E
present value.
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Question 8
Multiple Choice

The term "present value" refers to the

Choose correct answer/s
A
value that a capital good will have in the future.
B
current interest rate.
C
current purchase price of a capital good.
D
value today of a payment or receipt to occur in the future.
E
value in the future of a payment made today.
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Question 9
Multiple Choice

When we consider any future stream of benefits,and we seek to determine its value today,we ________ that steam of benefits using the market interest rate.

Choose correct answer/s
A
capitalize
B
collateralize
C
depreciate
D
discount
E
appreciate
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Question 10
Multiple Choice

The present value of a given future stream of benefits will be lower when the benefits are ________ and the interest rate is ________ .

Choose correct answer/s
A
nearer in time; lower
B
accruing in the first time period only; lower
C
more distant in time; higher
D
equalized over a ten-year period; zero
E
more distant in time; lower
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Question 11
Multiple Choice

The textbook presentation of present value involves an important simplification of reality in order to analyze the concept.That simplification is in assuming that

Choose correct answer/s
A
the future stream of MRPs lasts for one period only.
B
the future stream of MRPs of a unit of capital is known with certainty.
C
all units of capital generate an identical stream of MRPs.
D
the future stream of MRPs is constant over time.
E
the interest rate is constant over time.
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Question 12
Multiple Choice

The present value of $100 to be received one year from now,with an annual interest rate of 6%,is

Choose correct answer/s
A
$94.00.
B
$94.34.
C
$95.27.
D
$102.13.
E
$106.00.
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Question 13
Multiple Choice

If the annual interest rate is 5%,the present value of $100 to be received two years from now is

Choose correct answer/s
A
$87.70.
B
$90.70.
C
$95.23.
D
$97.00.
E
$110.00.
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Question 14
Multiple Choice

If the annual interest rate is 10%,the present value of $100 to be received two years from now is

Choose correct answer/s
A
$75.25.
B
$82.64.
C
$90.90.
D
$94.73.
E
$110.00.
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Question 15
Multiple Choice

If the annual rate of interest is 6%,the present value of $100 to be paid every year for three years (beginning one year from now)is

Choose correct answer/s
A
$83.90.
B
$251.88.
C
$267.30.
D
$283.02.
E
$300.00.
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Question 16
Multiple Choice

If the annual interest rate is 6%,the present value of $100 paid 3 years from now is

Choose correct answer/s
A
$15.15.
B
$40.00.
C
$56.45.
D
$83.96.
E
$94.34.
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Question 17
Multiple Choice

The formula to calculate the present value of a future payment of $X received t years from now when the annual percentage interest rate is i is

Choose correct answer/s
A
PV = $X/(1 + i)t.
B
PV = $X/i.
C
PV = $X/(1 + i).
D
PV = $X(1 + i)t.
E
PV = $X(1 + i).
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Question 18
Multiple Choice

A lottery winner receives a $100 000 cheque now,and a second one in two years.If the annual interest rate is 9%,the present value of his total winnings is

Choose correct answer/s
A
$184 168.
B
$200 000.
C
$215 832.
D
$300 000.
E
Not able to determine from the information provided.
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Question 19
Multiple Choice

How much would you have to deposit today in a bank account paying 8% annual interest to allow you to withdraw $200 one year from now?

Choose correct answer/s
A
$185.19.
B
$216.00.
C
$160.00.
D
$385.19.
E
$200.00.
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Question 20
Multiple Choice

How much would you have to deposit today in a bank account paying 8% annual interest to allow you to withdraw $200 one year from now and still have $200 remaining in the bank?

Choose correct answer/s
A
$185.19.
B
$216.00.
C
$370.37.
D
$385.19.
E
none of the above.
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