Considering the concept of compounding, explain why in determining the future value of a $100 investment at 5 percent annual interest, you can't simply multiply $100 by (1.10) and get the correct answer.
What will be an ideal response?
To simply multiply $100 by 1.10 ignores the effect of compounding which is interest paid on the principal and on the interest earned. That is why the correct formula would be FV = $100(1.05)2.
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The prime rate is the interest rate at which banks can borrow from the Fed
Indicate whether the statement is true or false
A bank will charge a higher interest rate the:
A. longer is the length of the loan, and the higher the risk of repayment. B. longer is the length of the loan, and the lower the risk of repayment. C. shorter is the length of the loan, and the higher the risk of repayment. D. shorter is the length of the loan, and the lower the risk of repayment.
Which of the following is not correct?
a. Indifference curves are downward sloping. b. Indifference curves that are closer to the origin are preferred to indifference curves that are further from the origin. c. Indifference curves are bowed in toward the origin. d. Indifference curves do not cross.
The time it takes for Congress to deliberate over a specific fiscal policy action is an example of
A. A multiplier conflict. B. A design problem. C. A measurement problem. D. An implementation problem.