Finance 409 / Exam 2 / Chapter 9 || Verified for Accuracy.
money has a time value so long as... correct answers interest is earned by saving or investing
money
as the interest rate increases correct answers present value decreases
compound interest correct answers interest earned on interest in addition to interest earned on the
principal
as the number of periods increases... correct answers present value decreases
if the compound inflation rate were grater than the compound interest rate correct answers future
purchasing power on our savings would fall
discounting correct answers an arithmetic process whereby a future sum decreases at a
compounding interest rate over time to reach a present value
The Rule of 72 correct answers an estimate of how long it would take to double a sum of money
at a given interest rate
at a zero interest rate, the present value of $1 correct answers remains at $1 and is not affected by
time
annuity correct answers a series of equal payments that occur over a number of time periods
ordinary annuity correct answers exists when the equal payments occur at the end of each time
period
amortized loan correct answers repaid in equal payments over a specified time period
,fixed-rate mortgage is an example of an __________ correct answers annuity
the method of calculating the annual percentage rate (APR) is set by _____ correct answers law
by the Truth in Lending law, APR = r×m, r=interest rate charged per period,
m=number of periods, 1%/month → APR=12%
what happens when the annual interest rate stays the same? correct answers more frequent
interest compounding helps savers earn more interest over the course of the year
for the same annual percentage rate, more frequent compounding __________ the future of an
investor's funds more quickly correct answers increases
compounding correct answers interest earned each year, plus the principal, will be reinvested at
the stated rate
annuity correct answers a series of payments or receipts that occur over a number of time periods
(PAYMENTS ARE EQUAL)
annuity due correct answers equal period payments BUT the payment occur at the BEGINNING
of each time period
the effective annual rate (EAR) is sometimes called the... correct answers annual effective yield
the effective annual rate (EAR) is the true opportunity cost measure of the... correct answers
interest rate
, at very low and very high interest rates, what rule does not approximate the compounding
process well and will result in a small estimation error of the time for an investment to double?
correct answers "Rule of 72"
loan amortization schedule correct answers shows the breakdown of each payment between
interest and principal, as well as the remaining balance after each payment
the interest portion ________ and the principal portion ________ over time under a typical loan
amortization schedule correct answers the interest portion DECREASES and the principal
portion INCREASES over time under a typical loan amortization schedule
with compound interest, interest is earned only on... correct answers the investment's principal
with simple interest
if the interest rate is 0% for 10 years, then the present value will be _________ as the future
value correct answers the same
what is the future value of $100 deposited today for 10 years at 10% compounded annually is...
correct answers $259.37
PV 100 N 10 I/Y 10 → FV = $259.37
the present value of $100 RECEIVED in 10 years at 10% compounded annually is... correct
answers $38.55
FV 100 N 10 I/Y 10 → PV = $38.55
the future value of a $100 ordinary annuity deposited for 10 years at 10% is... correct answers
$1,593.74
money has a time value so long as... correct answers interest is earned by saving or investing
money
as the interest rate increases correct answers present value decreases
compound interest correct answers interest earned on interest in addition to interest earned on the
principal
as the number of periods increases... correct answers present value decreases
if the compound inflation rate were grater than the compound interest rate correct answers future
purchasing power on our savings would fall
discounting correct answers an arithmetic process whereby a future sum decreases at a
compounding interest rate over time to reach a present value
The Rule of 72 correct answers an estimate of how long it would take to double a sum of money
at a given interest rate
at a zero interest rate, the present value of $1 correct answers remains at $1 and is not affected by
time
annuity correct answers a series of equal payments that occur over a number of time periods
ordinary annuity correct answers exists when the equal payments occur at the end of each time
period
amortized loan correct answers repaid in equal payments over a specified time period
,fixed-rate mortgage is an example of an __________ correct answers annuity
the method of calculating the annual percentage rate (APR) is set by _____ correct answers law
by the Truth in Lending law, APR = r×m, r=interest rate charged per period,
m=number of periods, 1%/month → APR=12%
what happens when the annual interest rate stays the same? correct answers more frequent
interest compounding helps savers earn more interest over the course of the year
for the same annual percentage rate, more frequent compounding __________ the future of an
investor's funds more quickly correct answers increases
compounding correct answers interest earned each year, plus the principal, will be reinvested at
the stated rate
annuity correct answers a series of payments or receipts that occur over a number of time periods
(PAYMENTS ARE EQUAL)
annuity due correct answers equal period payments BUT the payment occur at the BEGINNING
of each time period
the effective annual rate (EAR) is sometimes called the... correct answers annual effective yield
the effective annual rate (EAR) is the true opportunity cost measure of the... correct answers
interest rate
, at very low and very high interest rates, what rule does not approximate the compounding
process well and will result in a small estimation error of the time for an investment to double?
correct answers "Rule of 72"
loan amortization schedule correct answers shows the breakdown of each payment between
interest and principal, as well as the remaining balance after each payment
the interest portion ________ and the principal portion ________ over time under a typical loan
amortization schedule correct answers the interest portion DECREASES and the principal
portion INCREASES over time under a typical loan amortization schedule
with compound interest, interest is earned only on... correct answers the investment's principal
with simple interest
if the interest rate is 0% for 10 years, then the present value will be _________ as the future
value correct answers the same
what is the future value of $100 deposited today for 10 years at 10% compounded annually is...
correct answers $259.37
PV 100 N 10 I/Y 10 → FV = $259.37
the present value of $100 RECEIVED in 10 years at 10% compounded annually is... correct
answers $38.55
FV 100 N 10 I/Y 10 → PV = $38.55
the future value of a $100 ordinary annuity deposited for 10 years at 10% is... correct answers
$1,593.74
