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##### Which of the following is correct when interest rates (discount rates) rise?

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**Question**

1. Which of the following is correct when interest rates (discount rates) rise?;a. Present value of future cash flows go up;b. Future value of current cash flows go down;c. Prices of bonds go up;d. It takes longer to save money;2. If inflation goes up, the discount rate goes;a. up;b. down;c. sideways;d. nowhere;3. There are two banks in the neighborhood and they promise the same annual interest rate. Bank A;makes quarterly interest payment whereas Bank B makes monthly interest payment. You would take;your deposit to;a. Bank A;b. Bank B;c. It makes no difference.;4. There are two banks in the neighborhood and they promise the same annual interest rate. Bank C;pays compound interest whereas Bank D pays simple interest. You would take your deposit to;a. Bank C;b. Bank D;c. It makes no difference.;5. What is the present value (PV) of $100 to be paid one year from today at the interest rate of 10%?;a. $110;b.$99.1;c.$90.9 d.$89;e.$111;6. What is the future value of current $100 one year from today at the interest rate of 10%?;a. $110;b.$99.1;c.$90.9;d.$89;e.$111;7. What is the present value of an annuity of $100 to be paid starting one year from today for three;years in a row at the interest rate of 10%?;a. more than $300;b. less than $300;c. cannot be determined;d.$300;8. What is the future value at year three of the current $100 at the interest rate of 10%?;a. more than $100;b. less than $100;c. cannot be determined;d.$100;9. What is the future value of an annuity of $100 to be paid starting one year from today for three years;in a row at the interest rate of 10%?;a. more than $300;b. less than $300;c. cannot be determined;d.$300;10. As inflation goes up, the purchasing power of $100 goes;a. up b. down;c. sideways;d. nowhere

Paper#21685 | Written in 18-Jul-2015

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