Question

6.When comparing the future value of two investments: one that earns 6% p.a. simple interest and the other that earns 6% p.a interest compounding annually, the difference can best be described as:

Select one:

A. the time value of money

B. a pricing convention in money markets

C. compound interest

D. interest on interest

7.A loan for $5,000 is to be repaid by payments of $2,000 after 1 year and $X after 2 years. Interest is at 9%p.a compounding monthly. If we use the monthly periodic interest rate, the time intervals for the timeline should be in:

Select one:

a. Months

b. Years

c. Half-years

d. Quarters

8.Intermediaries, by managing deposits they receive, are able to make loans of a long-term nature whilst satisfying saver's preferences for short-term, liquid claims. This statement is referring to which important attribute of financial intermediation?

Select one:

A. Maturity transformation

B. Credit risk transformation

C. Asset transformation

D. Investment transformation

Answer 1

Answer : 6 Correct Option is Option D Interest on Interest .

Reason :

In case of Simple interest we simply calculate Interest by Multiplying principal , rate and time but while calculating Compound Interest we take into account the componding and interest is paid on interest . Therefore The diffrence can be best described as Interest on Interest .

Answer : 7 Correct option is a. Months .

Reason :

In case of Compounding Monthly interest is calculated on interest also. Therefore the time intervals for the timeline should be in months.

Answer : 8 Correct Option is A. Maturity Transformation .

Reason :

Financial institutions Borrow money for  shorter period than lending Money in maturity Transformation. .Intermediaries, by managing deposits they receive, are able to make loans of a long-term nature whilst satisfying saver's preferences for short-term, liquid claims is Maturity Transformation.