Problem $1($MCQs$,30$ points$)$ Choose the one right answer.

If the bank pays you an interest rate of $5\%$ and the inflation rate is $2\%,$ then your real rate is

$($a$)3\mathrm{.}00\%.$

$($b$)7\mathrm{.}00\%$

$($c$)2\mathrm{.}94\%.$

$($d$)7\mathrm{.}10\%.$

The NPV and IRR criteria for comparing cash flows give the same result

$($a$)$ Always.

$($b$)$ When the cash flows repeat indefinitely in a cyclical manner.

$($c$)$ For one$-$time only projects.

$($d$)$ For short$-$term projects.

If the interest rate is $12\%$ per year, compounded continuously, the effective quarterly interest rate is

$($a$)3\mathrm{.}045\%.$

$($b$)3\mathrm{.}00\%.$

$($c$)2\mathrm{.}956\%.$

$($d$)2\mathrm{.}833\%.$

Lebanese treasury bonds pay higher yield than US treasury bonds of the same maturity because of

$($a$)$ Higher country instability and higher interest rate risks.

$($b$)$ Higher country instability and lower interest rate risks.

$($c$)$ Higher country instability and higher inflation rate risks.

$($d$)$ Higher country instability and lower inflation rate risks.

Consider three bonds with the same maturity and face value, and coupon rates of $3\%,4\%,$ and $5\%.$ If the interest rate increases by $1\%,$ which bond price will decrease the most?

$($a$)$ That of the $3\%$ coupon bond.

$($b$)$ That of the $4\%$ coupon bond.

$($c$)$ That of the $5\%$ coupon bond.

$($d$)$ Cannot tell.

When the interest rate increases significantly and stays high until a bond's maturity, bond buyers who hold the bond till maturity will achieve a yield which is

$($a$)$ Lower than what they were promised when they bought the bond.

$($b$)$ Higher than what they were promised when they bought the bond.

$($c$)$ The same as what they were promised when they bought the bond.

$($d$)$ Sometimes lower, sometimes higher, than what they were promised when they bought the bond.