Money & Banking Test Bank CERTIFICATION GUIDE
FOR 2025/2026 TESTS|MOST COMMON
QUESTIONS WITH CORRECTLY VERIFIED ANSWERS
(LATEST QUIZZES) |ALREADY A+
GRADED|GUARANTEED PASS
Would a dollar tomorrow be worth more to you today when the interest rate is 20%, or when it
is 10%? - The present value moves opposite to the interest rate, therefore, today's value
will be lower if the interest rate is 20%.
A financial adviser has just given you the following advice: "Long-term bonds are a great
investment because their interest rate is over 20%." Is the financial adviser necessarily right? -
It depends on what you think will happen to interest rates in the future. If you expect
interest rates to rise, then no, since the price of the bond would fall in the future. If you think
interest rates will fall, then yes, since the price of the bond would rise in the future.
If interest rates decline, which would you rather be holding, long-term bonds or short-term
bonds? Why? Which type of bond has the greater interest-rate risk? - If interest rates fall,
I would prefer to be holding long-term bonds now. Bond prices and interest rates move in
opposite directions and the longer the time to maturity the larger the price change in response
to the interest rate change. Therefore, I expect to see a larger capital gain with the long-term
bond. Long-term bonds have the greater interest-rate risk.
What effect will a sudden increase in the volatility of gold prices have on interest rates? -
Gold is riskier, demand for bonds increases, the equilibrium bond price increases and
therefore, I expect interest rates to fall.
How might a sudden increase in people's expectations of future real estate prices affect interest
rates? - I want to purchase the real estate today before the price goes up. My demand for
bonds decreases, the equilibrium bond price decreases and therefore, I expect interest rates to
rise.
Explain what effect a large federal deficit should have on interest rates? - If the federal
budget deficit increases, the U.S. Treasury will need to borrow more funds by selling bonds. The
FOR 2025/2026 TESTS|MOST COMMON
QUESTIONS WITH CORRECTLY VERIFIED ANSWERS
(LATEST QUIZZES) |ALREADY A+
GRADED|GUARANTEED PASS
Would a dollar tomorrow be worth more to you today when the interest rate is 20%, or when it
is 10%? - The present value moves opposite to the interest rate, therefore, today's value
will be lower if the interest rate is 20%.
A financial adviser has just given you the following advice: "Long-term bonds are a great
investment because their interest rate is over 20%." Is the financial adviser necessarily right? -
It depends on what you think will happen to interest rates in the future. If you expect
interest rates to rise, then no, since the price of the bond would fall in the future. If you think
interest rates will fall, then yes, since the price of the bond would rise in the future.
If interest rates decline, which would you rather be holding, long-term bonds or short-term
bonds? Why? Which type of bond has the greater interest-rate risk? - If interest rates fall,
I would prefer to be holding long-term bonds now. Bond prices and interest rates move in
opposite directions and the longer the time to maturity the larger the price change in response
to the interest rate change. Therefore, I expect to see a larger capital gain with the long-term
bond. Long-term bonds have the greater interest-rate risk.
What effect will a sudden increase in the volatility of gold prices have on interest rates? -
Gold is riskier, demand for bonds increases, the equilibrium bond price increases and
therefore, I expect interest rates to fall.
How might a sudden increase in people's expectations of future real estate prices affect interest
rates? - I want to purchase the real estate today before the price goes up. My demand for
bonds decreases, the equilibrium bond price decreases and therefore, I expect interest rates to
rise.
Explain what effect a large federal deficit should have on interest rates? - If the federal
budget deficit increases, the U.S. Treasury will need to borrow more funds by selling bonds. The
