CHAPTER 06 14INTEREST RATES
Chapter 6: Interest Rates
The difficulty of these questions as seen by students will depend on (1) what was discussed in class and (2) how long students have to answer the questions. If time is not an issue, then many of the questions could be classified as EASY, but under exam conditions with time pressure, many might be regarded as being CHALLENGING. So, consider the amount of time students have when selecting questions for an exam.
Note that there is some overlap between the True/False and the multiple choice questions, as some T/F statements are used in the MC questions.
1. One of the four most fundamental factors that affect the cost of money as discussed in the text is the current state of the weather. If the weather is dark and stormy, the cost of money will be higher than if it is bright and sunny, other things held constant.
a. True
b. False
ANSWER: False
2. One of the four most fundamental factors that affect the cost of money as discussed in the text is the expected rate of inflation. If inflation is expected to be relatively high, then interest rates will tend to be relatively low, other things held constant.
a. True
b. False
ANSWER: False
3. One of the four most fundamental factors that affect the cost of money as discussed in the text is the risk inherent in a given security. The higher the risk, the higher the security’s required return, other things held constant.
a. True
b. False
ANSWER: True
4. One of the four most fundamental factors that affect the cost of money as discussed in the text is the time preference for consumption. The higher the time preference, the lower the cost of money, other things held constant.
a. True
b. False
ANSWER: False
5. The four most fundamental factors that affect the cost of money are (1) production opportunities, (2) time preferences for consumption, (3) risk, and (4) inflation.
a. True
b. False
ANSWER: True
6. The four most fundamental factors that affect the cost of money are (1) production
The difficulty of these questions as seen by students will depend on (1) what was discussed in class and (2) how long students have to answer the questions. If time is not an issue, then many of the questions could be classified as EASY, but under exam conditions with time pressure, many might be regarded as being CHALLENGING. So, consider the amount of time students have when selecting questions for an exam.
Note that there is some overlap between the True/False and the multiple choice questions, as some T/F statements are used in the MC questions.
1. One of the four most fundamental factors that affect the cost of money as discussed in the text is the current state of the weather. If the weather is dark and stormy, the cost of money will be higher than if it is bright and sunny, other things held constant.
a. True
b. False
ANSWER: False
2. One of the four most fundamental factors that affect the cost of money as discussed in the text is the expected rate of inflation. If inflation is expected to be relatively high, then interest rates will tend to be relatively low, other things held constant.
a. True
b. False
ANSWER: False
3. One of the four most fundamental factors that affect the cost of money as discussed in the text is the risk inherent in a given security. The higher the risk, the higher the security’s required return, other things held constant.
a. True
b. False
ANSWER: True
4. One of the four most fundamental factors that affect the cost of money as discussed in the text is the time preference for consumption. The higher the time preference, the lower the cost of money, other things held constant.
a. True
b. False
ANSWER: False
5. The four most fundamental factors that affect the cost of money are (1) production opportunities, (2) time preferences for consumption, (3) risk, and (4) inflation.
a. True
b. False
ANSWER: True
6. The four most fundamental factors that affect the cost of money are (1) production