Module 11

Question 1

interest rates

Answer 1

compensation paid by the borrower of funds to lender of funds

Question 2

cpi

Answer 2

uses basket of goods to estimate inflation

Question 3

nominal interest rate

Answer 3

inflation not factored in

Question 4

real interest rate

Answer 4

inflation factored in

Question 5

yield to maturity

Answer 5

annual rate of return earned on investment held to maturity

upward sloping

Question 6

liquidity preference theory

Answer 6

people prefer to have liquid assets

interest rates should increase for long term investments

Question 7

expectations theory

Answer 7

yield curve reflects expectation regarding future interest rates

Question 8

market segmentation theory

Answer 8

there are diff markets for short term and long term investors

Question 9

principal

Answer 9

amount of money on which interest being paid

Question 10

simple interest

Answer 10

when interest paid only on initial principal

Question 11

compound interest

Answer 11

when interest being earned on interest from principal

Question 12

lump sum

Answer 12

single one time payment

Question 13

annuity

Answer 13

periodic stream of cash flow

Question 14

mixed stream

Answer 14

unequal cash flows

Question 15

perpetuity

Answer 15

annuity w/ infinite lifespan

Question 16

amortization

Answer 16

repaying loan in installments