FIN 3320 Exam 2 Questions and
Answers
Loan Amortization Schedule - ANSWER-A breakdown of the interest and principal
payments on an amortized loan.
Ordinary Annuity - ANSWER-A series of equal dollar payments for a specified
number of periods with the payments occurring at the end of each period.
Perpetuity - ANSWER-An annuity with an infinite life.
Growing Perpetuity - ANSWER-A perpetuity in which the payments grow at a
constant rate from period to period over time.
Level Perpetuity - ANSWER-An annuity with a constant level of payments within an
infinite life.
Cash Return - ANSWER-The monetary increase (decrease) in the value of an
investment measure over a particular span of time.
Expected Rate of Return - ANSWER-The average of all possible rates of return,
where each possible return is weighted by the probability that it might occur.
Holding Period Return (Rate of Return) - ANSWER-The rate of return earned by
investing for a specific period of time, such as one year or one month.
Probability Distribution - ANSWER-For an investment's rate of return, a description of
all possible rates of return from the investment along with the probabilities for each
outcome.
Risk-Free Rate of Return - ANSWER-The rate of return earned by investing in a
security that always pays the promised rate of return (without risk).
Standard Deviation - ANSWER-The square root of the variance.
Variance - ANSWER-The average of the squared differences in possible rates of
return and the expected rate of return. As such, the variance is a measure of the
average squared difference in possible and expected rates of return.
Developed Country - ANSWER-Sometimes referred to as an industrialized country,
where the term is used to identify those countries (US, Great Britain, France) that
have highly sophisticated and well-developed economies.
Answers
Loan Amortization Schedule - ANSWER-A breakdown of the interest and principal
payments on an amortized loan.
Ordinary Annuity - ANSWER-A series of equal dollar payments for a specified
number of periods with the payments occurring at the end of each period.
Perpetuity - ANSWER-An annuity with an infinite life.
Growing Perpetuity - ANSWER-A perpetuity in which the payments grow at a
constant rate from period to period over time.
Level Perpetuity - ANSWER-An annuity with a constant level of payments within an
infinite life.
Cash Return - ANSWER-The monetary increase (decrease) in the value of an
investment measure over a particular span of time.
Expected Rate of Return - ANSWER-The average of all possible rates of return,
where each possible return is weighted by the probability that it might occur.
Holding Period Return (Rate of Return) - ANSWER-The rate of return earned by
investing for a specific period of time, such as one year or one month.
Probability Distribution - ANSWER-For an investment's rate of return, a description of
all possible rates of return from the investment along with the probabilities for each
outcome.
Risk-Free Rate of Return - ANSWER-The rate of return earned by investing in a
security that always pays the promised rate of return (without risk).
Standard Deviation - ANSWER-The square root of the variance.
Variance - ANSWER-The average of the squared differences in possible rates of
return and the expected rate of return. As such, the variance is a measure of the
average squared difference in possible and expected rates of return.
Developed Country - ANSWER-Sometimes referred to as an industrialized country,
where the term is used to identify those countries (US, Great Britain, France) that
have highly sophisticated and well-developed economies.
