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#1.LIBOR is
a. the interest rate paid by the British government on it’s long term bonds
b. a resource used in production
c. An interest rate paid on Eurodollar loans in the London market
d. an interest rate paid by European firms when they borrow Eurodollar deposits from U.S. banks.
#2. Commercial paper that is sold without the use of an actual paper certificate is known as
a. term paper
b. finance paper
c. dealer paper
d. book-entry paper
#3. All of the following are benefits of Commercial paper to the corporation except
a. they provide prestige
b. It is often issued at below the prime interest rate
c. there are no compensating balance requirements
d. they are less risky
#4. A firm has invested in corporate bonds: it may engage in a financial futures contract in order to protect itself from
a. changes in hedging activities
b. declining interest rates
c. rising interest raties
d. inflation
#5. Dr. J. wants to buy a Dell computer which will cost $2,788 four years from today. He would like to set aside an equal amount at the end of each year in order to accumulate the amount needed. He can earn 7% annual return. How much should he set aside?
a. $531.81
b. $697.00
c. $627.93
d.$823.15
#6. Under what conditions must a distinction be made between money to be received today and money to be received in the future?
a. When current interest rates are different from expected future rates
b. a period of recession
c. when idle money can earn a positive return
d. when there is no risk of non-payment in the future
#7. To save for her new born son’s college education, Lea Wilson will invest $1,000 at the beginning of each year for the next 18 yeas. The interest rate is 12 percent. What is the future value?
a. $55,750
b. $7,690
c. $34,931
d. $63,440
#8. Mr Nailor invests $5,000 in a money market account at his local bank. He receives annual interest of 8% for 7 years. How much return will his investment earn during this time period?
a. $8,570
b. $2,915
c. $3,570
d. $6,254
#9. Firms exposed to the risk of interest rate changes may reduce that risk by
a. hedging in the financial futures markets
b. pledging or factoring accounts receivable
c. obtaining a Eurodollar loan
d. hedging in the commodities markets
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