TCU Finance Exit Exam Questions and Answers|
Latest Update
Rate of return you could earn on an alternative investment of similar risk
Opportunity Cost
Finding Present Value is called ______________, the reverse of compounding.
Discounting
If payments are equal and are made at fixed intervals, then the series is an
_____________.
Annuity
If payments occur at the end of each period, then it is an ___________________.
Ordinary Annuity
Mortgages, car loans, and student loans.
What type of annuities are these?
Ordinary Annuity
If payments are made at the beginning of each period, then it's an
_______________.
Annuity Due
,Rental payments, life insurance.
What type of annuities are these?
Annuity Due
How do you find the Future Value of an Ordinary Annuity (END)?
FV = PMT[((1+r)^n - 1)/r]
PV = 0 (for calculator)
How do you find the Future Value of an Annuity Due (BEGIN)?
P = (PMT [((1 + r)n - 1) / r])(1 + r)
True/False: The FV of an annuity due will be greater than that of a similar
ordinary annuity.
True
How do you find the Present Value of an Ordinary Annuity?
P = PMT [(1 - (1 / (1 + r)n)) / r]
How do you find the Present Value of an Annuity Due?
P = (PMT [(1 - (1 / (1 + r)n)) / r]) x (1+r)
,True/False: The PV of an annuity due will be less than that of a similar ordinary
annuity.
False (Greater than)
In 1749 the British government issued some bonds whose proceeds were used
to pay off other British bonds and since this action consolidated the
government's debt, the new bonds were called ___________.
Consols
Promise to pay interest perpetually
Perpetuity
The interest rate that is actually earned or paid on an investment, loan, or other
financial product due to the result of compounding over a given time period
Effective Annual Rate (EAR)
What is another name for Effective Annual Rate (EAR)?
EFF% (Effective Percentage)
Calculation for Effective Annual Rate (EAR).
(1 + Inom/M)^M - 1.0
Inom/M = Periodic rate
, M = number of periods
When should Effective Annual Rate be used ?
Should be used to compare the effective cost or rate of return on loans or
investments when payment periods differ
A loan that is to be repaid in equal amounts on a monthly, quarterly, or annual
basis
Amortized Loan
Each payment will consist of two parts - interest and repayment of principal -
the breakdown is shown on a __________________________.
Amortization Schedule
How does Time effect present and future values of cash flows?
The later you receive the payment, the lower the present value of the cash flow
How does Interest Rate effect present and future values of cash flows?
The higher the interest rate, the higher the value of the cash flows
Long term contract which a borrower agrees to make payments of interest and
principal, on specific dates, to the holders of the bond
Bond
Latest Update
Rate of return you could earn on an alternative investment of similar risk
Opportunity Cost
Finding Present Value is called ______________, the reverse of compounding.
Discounting
If payments are equal and are made at fixed intervals, then the series is an
_____________.
Annuity
If payments occur at the end of each period, then it is an ___________________.
Ordinary Annuity
Mortgages, car loans, and student loans.
What type of annuities are these?
Ordinary Annuity
If payments are made at the beginning of each period, then it's an
_______________.
Annuity Due
,Rental payments, life insurance.
What type of annuities are these?
Annuity Due
How do you find the Future Value of an Ordinary Annuity (END)?
FV = PMT[((1+r)^n - 1)/r]
PV = 0 (for calculator)
How do you find the Future Value of an Annuity Due (BEGIN)?
P = (PMT [((1 + r)n - 1) / r])(1 + r)
True/False: The FV of an annuity due will be greater than that of a similar
ordinary annuity.
True
How do you find the Present Value of an Ordinary Annuity?
P = PMT [(1 - (1 / (1 + r)n)) / r]
How do you find the Present Value of an Annuity Due?
P = (PMT [(1 - (1 / (1 + r)n)) / r]) x (1+r)
,True/False: The PV of an annuity due will be less than that of a similar ordinary
annuity.
False (Greater than)
In 1749 the British government issued some bonds whose proceeds were used
to pay off other British bonds and since this action consolidated the
government's debt, the new bonds were called ___________.
Consols
Promise to pay interest perpetually
Perpetuity
The interest rate that is actually earned or paid on an investment, loan, or other
financial product due to the result of compounding over a given time period
Effective Annual Rate (EAR)
What is another name for Effective Annual Rate (EAR)?
EFF% (Effective Percentage)
Calculation for Effective Annual Rate (EAR).
(1 + Inom/M)^M - 1.0
Inom/M = Periodic rate
, M = number of periods
When should Effective Annual Rate be used ?
Should be used to compare the effective cost or rate of return on loans or
investments when payment periods differ
A loan that is to be repaid in equal amounts on a monthly, quarterly, or annual
basis
Amortized Loan
Each payment will consist of two parts - interest and repayment of principal -
the breakdown is shown on a __________________________.
Amortization Schedule
How does Time effect present and future values of cash flows?
The later you receive the payment, the lower the present value of the cash flow
How does Interest Rate effect present and future values of cash flows?
The higher the interest rate, the higher the value of the cash flows
Long term contract which a borrower agrees to make payments of interest and
principal, on specific dates, to the holders of the bond
Bond
