D076 Unit 3 WRITTEN EXAM PASSED
What is the term for the percentage of the principal that a lender charges a borrower for the use of
assets? - ✔✔✔Interest rate
How is the interest rate expressed? - ✔✔✔as a percentage
What is the main purpose of charging interest? - ✔✔✔It allows borrowers to pay to use the assets of
another entity to accomplish their own goals.
What is a component of the required rate of return? - ✔✔✔Opportunity cost
Why would a long-term investment require a higher rate of return? - ✔✔✔There is greater risk
involved and a higher opportunity cost.
You just inherited $25,000 from a long-lost relative. You decide to put the money in a savings account
for the time being. What would be considered an opportunity cost of putting the money in savings? - ✔
✔✔Buying a brand new car
Today, he pulled out $15,000 from his account to buy the car, but the price of the car is now $16,562.
Which component of the required rate of return did Ahmed forget to consider? - ✔✔✔Inflation
Why is built-in inflation linked to adaptive expectations? - ✔✔✔Workers want higher wages to keep
their standard of living as prices increase, which pushes the prices even higher.
What is the compensation for risk given to investors called? - ✔✔✔Risk Premium
Which type of interest rate is the rate at which invested money grows for a certain period time? - ✔✔
✔Nominal Rate
, Which component of an interest rate is an indicator of inflation and opportunity cost? - ✔✔✔Risk Free
Rate
What is the name for the interest rate expressed on an annual basis? - ✔✔✔Annual percentage rate
Why is the required rate of return also known as the hurdle rate? - ✔✔✔It is the minimum rate that a
firm must surpass to accept a project.
What is the inflation rate? - ✔✔✔The rate at which the average price level of a basket of goods and
services in an economy increases
What does the risk-free rate indicate? - ✔✔✔Inflation and opportunity cost
Suppose Sophia is considering a new stock investment for her retirement account. This stock has
significant risk, but is quite popular in the market. Inflation for the next few years is expected to be 2-3%
per year, and the current U.S. Treasury rates are about 2%. How should she use this information to
decide what type of return she can expect from the stock? - ✔✔✔Based on the inflation rate, she
should expect this stock to provide a return higher than this for the associated risk.
What is the name for a series of equal payments made at the end of consecutive periods over a fixed
length of time? - ✔✔✔Ordinary annuity
If you invest $10,000 today and then $5,000 each year for the next 5 years into an investment with an
interest rate of 4%, you can withdraw $39,248.14 in 5 years. What does $39,248.14 represent? - ✔✔✔
Future value
What is the name for the concept that a dollar today is worth more than a dollar in the future? - ✔✔✔
Time Value Money
What is the term for the percentage of the principal that a lender charges a borrower for the use of
assets? - ✔✔✔Interest rate
How is the interest rate expressed? - ✔✔✔as a percentage
What is the main purpose of charging interest? - ✔✔✔It allows borrowers to pay to use the assets of
another entity to accomplish their own goals.
What is a component of the required rate of return? - ✔✔✔Opportunity cost
Why would a long-term investment require a higher rate of return? - ✔✔✔There is greater risk
involved and a higher opportunity cost.
You just inherited $25,000 from a long-lost relative. You decide to put the money in a savings account
for the time being. What would be considered an opportunity cost of putting the money in savings? - ✔
✔✔Buying a brand new car
Today, he pulled out $15,000 from his account to buy the car, but the price of the car is now $16,562.
Which component of the required rate of return did Ahmed forget to consider? - ✔✔✔Inflation
Why is built-in inflation linked to adaptive expectations? - ✔✔✔Workers want higher wages to keep
their standard of living as prices increase, which pushes the prices even higher.
What is the compensation for risk given to investors called? - ✔✔✔Risk Premium
Which type of interest rate is the rate at which invested money grows for a certain period time? - ✔✔
✔Nominal Rate
, Which component of an interest rate is an indicator of inflation and opportunity cost? - ✔✔✔Risk Free
Rate
What is the name for the interest rate expressed on an annual basis? - ✔✔✔Annual percentage rate
Why is the required rate of return also known as the hurdle rate? - ✔✔✔It is the minimum rate that a
firm must surpass to accept a project.
What is the inflation rate? - ✔✔✔The rate at which the average price level of a basket of goods and
services in an economy increases
What does the risk-free rate indicate? - ✔✔✔Inflation and opportunity cost
Suppose Sophia is considering a new stock investment for her retirement account. This stock has
significant risk, but is quite popular in the market. Inflation for the next few years is expected to be 2-3%
per year, and the current U.S. Treasury rates are about 2%. How should she use this information to
decide what type of return she can expect from the stock? - ✔✔✔Based on the inflation rate, she
should expect this stock to provide a return higher than this for the associated risk.
What is the name for a series of equal payments made at the end of consecutive periods over a fixed
length of time? - ✔✔✔Ordinary annuity
If you invest $10,000 today and then $5,000 each year for the next 5 years into an investment with an
interest rate of 4%, you can withdraw $39,248.14 in 5 years. What does $39,248.14 represent? - ✔✔✔
Future value
What is the name for the concept that a dollar today is worth more than a dollar in the future? - ✔✔✔
Time Value Money
