FNAN 320 EXAM 2 QUESTIONS WITH VERIFIED
ANSWERS
Interest Rates
Effective Annual Rate (EAR) - Answers - The total amount of interest that will be earned
at the end of one year
-Also called the annual percentage yield (APY)
Annual Percentage Rates (APR) - Answers - Indicates the amount of interest earned in
one year without the effect of compounding
Simple Interest - Answers - Interest earned without the effect of compounding
Nominal Interest Rates - Answers - The rate at which your money will grow if invested
for a certain period
Chapter 6: Bonds - Answers -
Real Interest Rate - Answers - The rate of growth of your purchasing power, after
adjusting for inflation
Term Structure - Answers - The relationship between the investment term and the
interest rate
Yield Curve - Answers - A plot of bond yields as a function of the bonds' maturity date
Risk-Free Interest Rate - Answers - The interest rate at which money can be borrowed
or lent without risk over a given period
Bond - Answers - A financial security which promises to make fixed payments
consisting of coupons and a face value over a specific period of time
Coupon - Answers - The fixed payment (as a % of face value) the bond makes
throughout its life
Face Value - Answers - The lump-sum payment the bond makes sat the maturity date
(end of the life of the bond)
Coupon Rate - Answers - The percentage of face value paid out as coupon payments
every year
ANSWERS
Interest Rates
Effective Annual Rate (EAR) - Answers - The total amount of interest that will be earned
at the end of one year
-Also called the annual percentage yield (APY)
Annual Percentage Rates (APR) - Answers - Indicates the amount of interest earned in
one year without the effect of compounding
Simple Interest - Answers - Interest earned without the effect of compounding
Nominal Interest Rates - Answers - The rate at which your money will grow if invested
for a certain period
Chapter 6: Bonds - Answers -
Real Interest Rate - Answers - The rate of growth of your purchasing power, after
adjusting for inflation
Term Structure - Answers - The relationship between the investment term and the
interest rate
Yield Curve - Answers - A plot of bond yields as a function of the bonds' maturity date
Risk-Free Interest Rate - Answers - The interest rate at which money can be borrowed
or lent without risk over a given period
Bond - Answers - A financial security which promises to make fixed payments
consisting of coupons and a face value over a specific period of time
Coupon - Answers - The fixed payment (as a % of face value) the bond makes
throughout its life
Face Value - Answers - The lump-sum payment the bond makes sat the maturity date
(end of the life of the bond)
Coupon Rate - Answers - The percentage of face value paid out as coupon payments
every year
