1. Can effective rate be greater than the nominal rate? (Given the following notation: annual compounding: M=1, semiannual compounding: M=2)
A. Yes, only when M=1
B. Yes, only when M>1
C. Yes, only when M>2
D. No, effective rate equals the nominal rate regardless of M values
E. None of the above
2. Sue now has $125. How much would she have after 8 years if she leaves it invested at 8.0% with annual compounding?
A. $205
B. $216
C. $231
D. $240
E. $252
3. Ten years ago, Lucas Inc. earned $0.50 per share. Its earnings this year is $2.80. What was the growth rate in earnings per share (EPS) over the 10-year period?
A. 15.17%
B. 15.97%
C. 16.77%
D. 17.61%
E. 18.80%
4. An investment of $222 will increase in value to $313 in four years. The annual compound growth rate is closest to:
A. 5.82%
B. 6.38%
C. 7.64%
D. 8.97%
E. 9.39%
F. None of the above
5. Suppose you inherited $275,000 and invested it at 8.00% per year. How much could you withdraw at the end of each of the next 20 years? A. $28,010
B. $29,959
C. $32,301
D. $33,030
E. $34,681
6. If the real risk-free rate is 1.5% and if inflation was expected to be 2.0% during the next year, the quoted rate of interest on one-year T-bills would be 1.5%.
A. True B. False
7. What is normal yield curve?
A. A yield curve where interest rates on long-term maturities are higher than rates on both short- and intermediate-term.
B. A yield curve where interest rates on intermediate-term maturities are lower than rates on both short- and long-term maturities.
C. A yield curve where real risk-free interest rates are higher than nominal risk-free interest rates.
D. A yield curve where real risk-free interest rates are lower than nominal risk-free interest rates. E. None of above.
8. Which one of the following has the highest effective annual rate?
A. 6 percent compounded annually
B. 6 percent compounded semiannually
C. 6 percent compounded quarterly
D. 6 percent compounded daily
E. 6 percent compounded every 2 years
9. An investment of $231 will increase in value to $268 in three years. The annual compound growth rate is closest to:
A. 4.0%
B. 5.0%
C. 5.5%
D. 6.0%