Old Test Questions

Question 1

Describe the process used to determine the theoretical value (fair market value) of any financial asset.

Answer 1

Discount all future cashflows to T=0 and then add them up.

Question 2

The yield curve does not tell you what interest rates will be in the future (more on this later)

True or false

Answer 2

False - they give a general prediction but can not tell the exact future

Question 3

What are the two questions you want to ask when making a borrowing decision?

Answer 3

Should I borrow now or later?

Should I borrow long or short?

Question 4

An investment that has an APR of 12% and provides quarterly payments actually pays how much per period?

Answer 4

(12%)/(4quarters)=3%

Question 5

What is the actual rate of return being earned or paid per year, when compounding is factored in?

Answer 5

The Effective annual rate

Question 6

What is the minimal rate of return you can expect from any investment.

Answer 6

The minimal rate should be equal to opportunity cost and inflation

Question 7

What is an amortized loan?

Answer 7

In banking and finance, an amortizing loan is a loan where the principal of the loan is paid down over the life of the loan (that is, amortized) according to an amortization schedule, typically through equal payments.