MCQ-REMUNERATIVE RATE OF INTEREST

MCQ-REMUNERATIVE RATE OF INTEREST AND ACCUMULATIVE RATE OF INTEREST

What does the accumulative rate of interest refer to?

A) The interest rate that accrues on a daily basis.
B) The rate at which interest is compounded and added to the principal.
C) The rate at which interest is deducted from the principal.
D) The flat rate of interest applied annually.

Answer: B) The rate at which interest is compounded and added to the principal.

Which of the following financial products commonly use accumulative rates of interest?

A) Savings accounts
B) Current accounts
C) Fixed deposits
D) Recurring deposits

Answer: D) Recurring deposits

How does compounding frequency affect the accumulative rate of interest?

A) Less frequent compounding increases the effective interest rate.
B) More frequent compounding decreases the effective interest rate.
C) More frequent compounding increases the effective interest rate.
D) Compounding frequency has no effect on the effective interest rate.

Answer: C) More frequent compounding increases the effective interest rate.

Which formula is used to calculate the future value with accumulative interest?

A) FV=PV×(1+rt)
B) FV=PV×(1+rn)nt
C) FV=PV÷(1+rt)
D) FV=PV−(rt)

Answer: B) FV=PV×(1+rn)nt

In the context of accumulative interest, what does the term “compounding” refer to?

A) Calculating simple interest on the principal amount.
B) Adding earned interest to the principal to earn interest on interest.
C) Subtracting earned interest from the principal.
D) Multiplying the principal amount by the interest rate.

Answer: B) Adding earned interest to the principal to earn interest on interest.

What is the main advantage of an accumulative rate of interest for an investor?

A) Regular income through interest payouts
B) Interest on interest, leading to higher returns over time
C) Fixed returns regardless of market conditions
D) Tax-free interest earnings

Answer: B) Interest on interest, leading to higher returns over time.

Which of the following compounding frequencies will result in the highest accumulative interest?

A) Annually
B) Semi-annually
C) Quarterly
D) Daily

Answer: D) Daily

In India, which financial instrument is most likely to use an accumulative rate of interest?

A) Savings account
B) Fixed deposit
C) Recurring deposit
D) Provident fund

Answer: C) Recurring deposit

What is the effect of a longer compounding period on the accumulative rate of interest?

A) It decreases the total interest earned.
B) It increases the total interest earned.
C) It has no effect on the total interest earned.
D) It results in lower nominal interest.

Answer: B) It increases the total interest earned.

Which of the following formulas is used to calculate the compound interest?

A) A=P(1+rt)
B) A=P(1+rn)nt
C) A=P+(P×r×t)
D) A=P×(1−rt)

Answer: B) A=P(1+rn)nt

How does an increase in the interest rate affect the accumulative rate of interest?

A) It decreases the accumulative rate.
B) It has no impact on the accumulative rate.
C) It increases the accumulative rate.
D) It makes the accumulative rate volatile.

Answer: C) It increases the accumulative rate.

If interest is compounded annually, how many times is interest added to the principal in one year?

A) Once
B) Twice
C) Four times
D) Twelve times

Answer: A) Once

Which of the following investments typically benefits the most from a high accumulative rate of interest?

A) Short-term bonds
B) Savings accounts
C) Long-term deposits
D) Current accounts

Answer: C) Long-term deposits

In the context of accumulative interest, what does the term “effective annual rate” (EAR) refer to?

A) The nominal interest rate divided by the number of compounding periods.
B) The annual interest rate adjusted for compounding within the year.
C) The interest rate before accounting for compounding.
D) The flat rate of interest applied annually.

Answer: B) The annual interest rate adjusted for compounding within the year.

Which of the following best illustrates the concept of accumulative interest?

A) Simple interest on a savings account
B) Interest earned on a fixed deposit compounded quarterly
C) Interest earned on a zero-coupon bond
D) Interest paid on a credit card balance

Answer: B) Interest earned on a fixed deposit compounded quarterly

How does an increase in the frequency of compounding affect the future value of an investment?

A) It decreases the future value.
B) It increases the future value.
C) It has no effect on the future value.
D) It only affects the present value.

Answer: B) It increases the future value.

What happens to the principal amount in an accumulative interest account at the end of each compounding period?

A) It remains unchanged.
B) It is reduced by the interest earned.
C) It is increased by the interest earned.
D) It is reset to zero.

Answer: C) It is increased by the interest earned.

Which of the following best describes a cumulative deposit scheme?

A) A scheme where interest is paid out regularly.
B) A scheme where interest is compounded and paid at maturity.
C) A scheme with a fixed interest rate and no compounding.
D) A scheme with variable interest rates and no compounding.

Answer: B) A scheme where interest is compounded and paid at maturity.

If an investment compounds quarterly, how many times will interest be added to the principal in a year?

A) 2 times
B) 4 times
C) 12 times
D) 52 times

Answer: B) 4 times

Which type of interest calculation will yield a higher amount for the same principal and rate: simple interest or accumulative interest?

A) Simple interest
B) Accumulative interest
C) Both yield the same amount
D) Depends on the compounding frequency

Answer: B) Accumulative interest

How does inflation impact the real returns of an investment with an accumulative rate of interest?

A) Increases real returns
B) Decreases real returns
C) Has no impact on real returns
D) Makes real returns unpredictable

Answer: B) Decreases real returns

What is the primary benefit of compounding interest for long-term investments?

A) Regular income stream
B) Capital preservation
C) Accelerated growth of investment
D) Lower tax liability

Answer: C) Accelerated growth of investment

In the formula for compound interest A=P(1+rn)nt, what does “n” represent?

A) Nominal interest rate
B) Number of compounding periods per year
C) Total number of years
D) Principal amount

Answer: B) Number of compounding periods per year

What is the result of compounding interest annually versus semi-annually on the same principal amount?

A) Higher interest with annual compounding
B) Lower interest with semi-annual compounding
C) Higher interest with semi-annual compounding
D) Same interest for both

Answer: C) Higher interest with semi-annual compounding

What type of interest rate is most beneficial for a borrower?

A) Fixed rate
B) Simple interest rate
C) Variable rate
D) Accumulative interest rate

Answer: B) Simple interest rate

When is the interest earned in an accumulative interest scheme typically paid out?

A) Monthly
B) Quarterly
C) Annually
D) At maturity

Answer: D) At maturity

What is the effect of a reduction in the remunerative rate of interest typically on the economy?

A) It leads to higher inflation.
B) It encourages borrowing and investment.
C) It reduces consumer spending.
D) It strengthens the currency.

Answer: B) It encourages borrowing and investment.

When the remunerative rate of interest is high, what is the likely impact on fixed income securities?

A) The prices of fixed income securities increase.
B) The yield on fixed income securities decreases.
C) The prices of fixed income securities decrease.
D) There is no impact on fixed income securities.

Answer: C) The prices of fixed income securities decrease.

Which of the following is a common tool used by the Reserve Bank of India to control the remunerative rate of interest?

A) Public expenditure
B) Monetary policy
C) Tax policy
D) Subsidies

Answer: B) Monetary policy

What is the impact of a higher remunerative rate of interest on consumer loans?

A) Consumer loans become cheaper.
B) There is no impact on consumer loans.
C) Consumer loans become more expensive.
D) The demand for consumer loans increases.

Answer: C) Consumer loans become more expensive.

In India, which rate is often used as a reference for setting the remunerative rate of interest for commercial banks?

A) Base rate
B) Bank rate
C) Repo rate
D) Marginal cost of funds-based lending rate (MCLR)

Answer: C) Repo rate

Which sector is most affected by changes in the remunerative rate of interest?

A) Real estate sector
B) Healthcare sector
C) Education sector
D) Technology sector

Answer: A) Real estate sector

Which type of loan is most sensitive to changes in the remunerative rate of interest?

A) Fixed-rate mortgage
B) Variable-rate mortgage
C) Subsidized student loans
D) Agricultural loans

Answer: B) Variable-rate mortgage

How does a high remunerative rate of interest affect the cost of capital for businesses?

A) It decreases the cost of capital.
B) It increases the cost of capital.
C) It has no impact on the cost of capital.
D) It makes the cost of capital unpredictable.

Answer: B) It increases the cost of capital.

What is the typical response of the Reserve Bank of India when inflation is above its target range?

A) Reduce the remunerative rate of interest.
B) Increase the remunerative rate of interest.
C) Maintain the remunerative rate of interest.
D) Introduce fiscal stimulus.

Answer: B) Increase the remunerative rate of interest.

Which of the following is a consequence of reducing the remunerative rate of interest?

A) Increase in savings.
B) Increase in consumer spending.
C) Decrease in loan demand.
D) Decrease in investment.

Answer: B) Increase in consumer spending.

The remunerative rate of interest for government bonds is usually:

A) Lower than corporate bonds.
B) Higher than corporate bonds.
C) Same as corporate bonds.
D) Irrelevant to corporate bonds.

Answer: A) Lower than corporate bonds.

What is the effect of a remunerative rate of interest hike on the stock market?

A) Stock prices generally rise.
B) Stock prices generally fall.
C) No effect on stock prices.
D) Increases stock market volatility.

Answer: B) Stock prices generally fall.

Which type of interest rate is considered the “risk-free” rate and is often used as a benchmark for remunerative rates?

A) Corporate bond rate
B) Treasury bill rate
C) Commercial paper rate
D) Certificate of deposit rate

Answer: B) Treasury bill rate

When setting the remunerative rate of interest, the RBI primarily aims to balance:

A) Employment and taxation.
B) Growth and inflation.
C) Exports and imports.
D) Budget deficit and public debt.

Answer: B) Growth and inflation.

Remunerative rates of interest are crucial for which of the following financial instruments?

A) Equity shares
B) Derivatives
C) Fixed deposits
D) Mutual funds

Answer: C) Fixed deposits

What happens to the real rate of interest if the remunerative rate of interest is constant but inflation rises?

A) The real rate of interest increases.
B) The real rate of interest decreases.
C) The real rate of interest remains unchanged.
D) The real rate of interest becomes negative.

Answer: B) The real rate of interest decreases.

Which of the following is NOT a factor considered in determining the remunerative rate of interest?

A) Inflation expectations
B) Economic growth projections
C) Political stability
D) Fiscal policy measures

Answer: C) Political stability

Remunerative rates of interest are often adjusted in response to which type of economic indicator?

A) Unemployment rate
B) Consumer confidence index
C) Trade deficit
D) Gross Domestic Product (GDP) growth rate

Answer: D) Gross Domestic Product (GDP) growth rate

In the context of housing finance, a remunerative rate of interest increase would most likely lead to:

A) Higher demand for houses
B) Lower mortgage interest rates
C) Higher mortgage interest rates
D) Increased real estate prices

Answer: C) Higher mortgage interest rates