BANKING GENERAL KNOWLEDGE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Longer time period usually equals higher interest rates.
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Shorter time period usually equals higher interest rates.
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Longer time periods usually have no effect on interest rates.
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Shorter time periods usually have no effect on interest rates.
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Detailed explanation-1: -The correct answer is (ii) Longer time period usually equals higher interest rates. The interest rate has a positive relationship with time. It means that a greater time period will have a higher interest rate and vice-versa.
Detailed explanation-2: -The higher the interest rate and the longer the time until payment is made, the lower the present value of a future payment.
Detailed explanation-3: -The term to maturity is one factor in the interest rate paid on a bond. The longer the term, the higher the return. In the secondary market, a bond’s value is based on its remaining yield to maturity as well as its face, or par, value.
Detailed explanation-4: -Short-term and long-term interest rates are positively correlated. Short-term interest rates fluctuate more than long-term interest rates. Long-term bonds fluctuate in price by a greater percentage than short-term bonds. The fluctuation in price is the duration times the fluctuation in the yield to maturity.
Detailed explanation-5: -In general, the longer your loan term, the more interest you will pay. Loans with shorter terms usually have lower interest costs but higher monthly payments than loans with longer terms.