Fin 320(Managerial Finance)
Exam 2 Questions with Correct
Answers
Future Value (FV) - Correct Answers: The future value of an investment today
Present Value (PV) - Correct Answers: Present value of cash received in the future
Goal of TVM(Time value of money) - Correct Answers: To evaluate the trade off between dollars today
and in the future
Simple interest - Correct Answers: Only earns interest on principal
-Uncommon
-Done by hand
Compound interest - Correct Answers: Builds interest on principle and interest
-Common
-Done by calculator
Future Value (FV) formula - Correct Answers: =PV(1+r)^t
Present Value (PV) formula - Correct Answers: =FV/(1+r)^t
Annuities - Correct Answers: Finite sequence of equal payments
What're the two types of annuities? - Correct Answers: -Ordinary
-Annuity due
, Ordinary Annuity - Correct Answers: Most common, payment falls at the end of the period
ex: Auto payment, student loans, mortgage
Annuity due - Correct Answers: Payment falls at the beginning
ex: Rent, Scholarship
Perpetuity - Correct Answers: Like an annuity, but is an infinite series of equal payments
-Ex: Life insurance
Perpetuity formula - Correct Answers: = c / r
PV=Cash flows/ Interest
Three types of loans - Correct Answers: -Pure Discount
-Interest Only
-Ammortized
Pure discount Loan - Correct Answers: Borrower receives $ today, then pays principle and interest as a
lump sum in the future
ex: $1,000 10%
1,000 +100= $1,100
Interest-only Loan - Correct Answers: Pays interest only and at the end of loan agreement, pay back the
principal + the interest
ex: $1,000 10%
yr. 1 100
yr. 2 100
yr. 3 $1,000 + 100
Amortized loans - Correct Answers: Pay a combination of principal and interest together over time
Exam 2 Questions with Correct
Answers
Future Value (FV) - Correct Answers: The future value of an investment today
Present Value (PV) - Correct Answers: Present value of cash received in the future
Goal of TVM(Time value of money) - Correct Answers: To evaluate the trade off between dollars today
and in the future
Simple interest - Correct Answers: Only earns interest on principal
-Uncommon
-Done by hand
Compound interest - Correct Answers: Builds interest on principle and interest
-Common
-Done by calculator
Future Value (FV) formula - Correct Answers: =PV(1+r)^t
Present Value (PV) formula - Correct Answers: =FV/(1+r)^t
Annuities - Correct Answers: Finite sequence of equal payments
What're the two types of annuities? - Correct Answers: -Ordinary
-Annuity due
, Ordinary Annuity - Correct Answers: Most common, payment falls at the end of the period
ex: Auto payment, student loans, mortgage
Annuity due - Correct Answers: Payment falls at the beginning
ex: Rent, Scholarship
Perpetuity - Correct Answers: Like an annuity, but is an infinite series of equal payments
-Ex: Life insurance
Perpetuity formula - Correct Answers: = c / r
PV=Cash flows/ Interest
Three types of loans - Correct Answers: -Pure Discount
-Interest Only
-Ammortized
Pure discount Loan - Correct Answers: Borrower receives $ today, then pays principle and interest as a
lump sum in the future
ex: $1,000 10%
1,000 +100= $1,100
Interest-only Loan - Correct Answers: Pays interest only and at the end of loan agreement, pay back the
principal + the interest
ex: $1,000 10%
yr. 1 100
yr. 2 100
yr. 3 $1,000 + 100
Amortized loans - Correct Answers: Pay a combination of principal and interest together over time
