#1
What is the formula for calculating simple interest?
P * r * t
ExplanationProduct of principal, interest rate, and time.
#2
Which of the following is an example of a fixed interest rate?
Fixed-Rate Mortgage
ExplanationType of mortgage with a constant interest rate.
#3
What is the effective annual rate (EAR) also known as?
Equivalent Annual Rate (EAR)
ExplanationAnnual interest rate accounting for compounding.
#4
How does compounding frequency affect the effective interest rate?
Higher compounding frequency increases the effective interest rate
ExplanationMore frequent compounding leads to higher effective rate.
#5
Which term represents the interest earned on both the initial principal and the accumulated interest from previous periods?
Compound Interest
ExplanationInterest on principal and previous interest.
#6
What is the main purpose of the Federal Reserve's Open Market Operations (OMO) concerning interest rates?
Manage money supply and interest rates
ExplanationControlling money supply and interest rates.
#7
What is the difference between the nominal interest rate and the real interest rate?
Nominal interest rate includes inflation, real interest rate does not
ExplanationNominal includes inflation, real does not.
#8
Which factor is considered when calculating the present value of future cash flows using the discount rate?
All of the above
ExplanationVarious factors, including risk, time, and inflation.
#9
What is the Fisher equation used for in finance?
Calculating inflation-adjusted interest rates
ExplanationAdjusting nominal rates for expected inflation.
#10
Which interest rate reflects the real cost of borrowing for a borrower?
Real Interest Rate
ExplanationInterest rate adjusted for inflation.
#11
What does the term 'Yield Curve' represent in finance?
The relationship between interest rates and time to maturity
ExplanationGraphical representation of interest rates over time.
#12
In the context of interest rates, what is the 'Liquidity Premium'?
Extra return demanded by investors for holding a less liquid asset
ExplanationAdditional return for holding less liquid assets.
#13
What is the purpose of the Taylor Rule in monetary policy?
Guiding central banks in setting interest rates
ExplanationFormula guiding central banks in rate decisions.
#14
What is the key determinant of interest rates in the Loanable Funds Theory?
Supply and demand for money
ExplanationInterest rates determined by money supply and demand.