FIN 3403 UCF EXAM 2 REVIEW QUESTIONS
WITH VERIFIED SOLUTIONS
the amount of money given today is more valuable than the same amount a year from now
due to the ______ of holding the money
opportunity cost
the time value of money problems come in two forms which are?
compounding and discounting
how do compounding and discounting differ?
compounding is the calculation of finding the FV while discounting is finding the PV of a future
value
what is the one type of future value calculation that can not be made with a calculator?
continuous compounding
what is the equation used for continuous compounding?
FV= PV e^IN
so if we have a FV of 1,000 invested at 7% for 100 years with continuous compounding it
can be calculated as?
(0.07)(100)= 7 shift e x 1000
there is a positive relationship between the interest rate and future value, meaning when
FV increases when....
interest rates rise....decreases when falls
there is a positive relationship between N and what value
future value, the more periods the larger it grows
there is a negative relationship between interest rates and ?
present values, the present value will get larger as the interest rates fall
cash flow streams are?
two or more payments made at different point in times
an annuity is ?
a series of equal annual cash flows
what are the two types of annuities
, Ordinary annuity and annuity due
an ordinary annuity is
a payment that is due at the end, while due is at the beginning
perpetuities
are a stream of equal payments that go on forever
a perpetuities is calculated as
PV= PMT/i
the PV of an annuity due is greater than the PV of ordinary why?
the money is received earlier so there is more time to accumulate interest
to find uneven cash flows, instead of reverting all the way back to PV for each payment
which functions can you use in your calculator?
CF, shift NPV
effective annual rate equation is
(1 + quoted rate /m ) ^m - 1 where m is number of compounding periods
how to determine the percentage of first and last 40 payment
principal/ payment
interest/payment
how to calculate APY, annual percentage yield of the quoted rate
12 periods, 7 interest rate, 25,000 car
12 SHIFT P/YR....7 I/YR...SHIFT EEF% .. should get 7.23%
which of the following rate would you like when taking out a loan?
4% annually
4% quarterly
4% monthly
5 % monthly
4% annually because you would want the lowest interest rate when taking out a loan
one of the bedrock principles of finance is is that risk and expected return are positively
related, true or false
true
WITH VERIFIED SOLUTIONS
the amount of money given today is more valuable than the same amount a year from now
due to the ______ of holding the money
opportunity cost
the time value of money problems come in two forms which are?
compounding and discounting
how do compounding and discounting differ?
compounding is the calculation of finding the FV while discounting is finding the PV of a future
value
what is the one type of future value calculation that can not be made with a calculator?
continuous compounding
what is the equation used for continuous compounding?
FV= PV e^IN
so if we have a FV of 1,000 invested at 7% for 100 years with continuous compounding it
can be calculated as?
(0.07)(100)= 7 shift e x 1000
there is a positive relationship between the interest rate and future value, meaning when
FV increases when....
interest rates rise....decreases when falls
there is a positive relationship between N and what value
future value, the more periods the larger it grows
there is a negative relationship between interest rates and ?
present values, the present value will get larger as the interest rates fall
cash flow streams are?
two or more payments made at different point in times
an annuity is ?
a series of equal annual cash flows
what are the two types of annuities
, Ordinary annuity and annuity due
an ordinary annuity is
a payment that is due at the end, while due is at the beginning
perpetuities
are a stream of equal payments that go on forever
a perpetuities is calculated as
PV= PMT/i
the PV of an annuity due is greater than the PV of ordinary why?
the money is received earlier so there is more time to accumulate interest
to find uneven cash flows, instead of reverting all the way back to PV for each payment
which functions can you use in your calculator?
CF, shift NPV
effective annual rate equation is
(1 + quoted rate /m ) ^m - 1 where m is number of compounding periods
how to determine the percentage of first and last 40 payment
principal/ payment
interest/payment
how to calculate APY, annual percentage yield of the quoted rate
12 periods, 7 interest rate, 25,000 car
12 SHIFT P/YR....7 I/YR...SHIFT EEF% .. should get 7.23%
which of the following rate would you like when taking out a loan?
4% annually
4% quarterly
4% monthly
5 % monthly
4% annually because you would want the lowest interest rate when taking out a loan
one of the bedrock principles of finance is is that risk and expected return are positively
related, true or false
true
