Question

32. The discounted present value of a payment is the value ___ of the payment ___.

a. today; made yesterday

b. tomorrow; made today        

c. today; made tomorrow

d. tomorrow; made yesterday

e. yesterday; made today

33. The term structure of interest rates:

a. represents the variation in yields for similar instruments differing only in maturity.

b. reflects differing tax treatment received by different instruments.

c. always results in an upward-sloping yield curve.

d. usually results in an inverted yield curve.

e. depends upon the payment terms of the security – whether coupons are paid out every six months versus every year.

34. When it comes to financial matters, the views of Aristotle can be stated as:

a. usury is nature’s way of helping each other.

b. the fact that money is barren makes it the ideal medium of exchange.

c. charging interest is immoral because money is not productive.

d. when you lend money, it grows more money.

e. interest is too high if it can’t be paid back.

35. Which of the following is true?

a. Early forms of interest arose from the lending of seeds and animals that could reproduce in order to pay off the interest.

b. Ancient Babylonians that lent silver were regulated in terms of how much interest they could charge.

c. In ancient India, temples served a banking function by issuing what we would today call a “bill of exchange.”

d. In England in the 1600s, money began to take the form of tradeable promissory notes.

e. All of the above.

36. The highest 30 year monthly mortgage rate of interest since 1971 was in:

a. August of 2011.

b. March of 2007.

c. July of 1991.

d. October of 1981.

e. May of 1985.

37. According to Louise Yamada, based on interest rate changes in America over the past two hundred years:

a. we should expect rates to have bottomed out in recent years and to rise for many years to come.

b. we have seen ten sharp downturns in interest rates over the many cycles since 1798.

c. interest rates will be falling by 3% to 5% over the next ten years.

d. higher interest rates signal the end of a bull market until they get up to about 5%.

e. None of the above.

38. Which of the following is false about Harvard professor Paul Schmelzing’s views and study of interest rates?

a. When interest rates change, they will rise only very slowly.

b. Most of the depressions in real interest rates for the past 700 years were due to wars and natural catastrophes.

c. His study included rates from Italy in the 14th and 15th centuries.

d. The real rate over the past 700 years has averaged under 5%.

e. The real rate over the past 200 years has averaged 2.6%.

41. During World War I, the marginal income tax rate (which began in 1913) on incomes over $750,000 was:

a. 1%.

b. 11%.

c. 25%.

d. 42%.

e. 76%.

Answer 1

Q32) c) The discounted present value of a payment is the value today of the payment made tomorrow.

Present value describes what the value of payment made in the future will be today.

Q33) a.) represents the variation in yields for similar instruments differing only in maturity

Term structure shows similar risk instruments for different amturities with their yields.

Q34) c) charging interest is immoral because money is not productive

Q35) a) Early forms of interest arose from the lending of seeds and animals that could reproduce in order to pay off the interest.

This is a true statement and such lending was often termed as food money.

Q36) d.) October of 1981.

It was 18.45% in October of 1981.

Q37) a). we should expect rates to have bottomed out in recent years and to rise for many years to come

Q38) a) When interest rates change, they will rise only very slowly.

There has been historic evidence against this statement.

Q41) e) 76%

The income tax rate was increased during the war to finance the war , the highest marginal rate shot up to 76% by 1918.