A. Finance, or financial management, requires the knowledge and precise use of the language of the field. Match the terms relating to the basic terminology and concepts of the time value of money on the left with the descriptions of the terms on the right. Read each description carefully and type the letter of the description in the Answer column next to the correct term. These are not necessarily complete definitions, but there is only one possible answer for each term. Term Answer Description Discounting A. A schedule or table that reports the amount of principal and the amount of interest that make up each payment made to repay a loan by the end of its regular term. Time value of money B. A loan in which the payments include interest as well as loan principal. Amortized loan C. A value that represents the interest paid by borrowers or earned by lenders, expressed as a percentage of the amount borrowed or invested over a 12-month period. Ordinary annuity D. A process that involves calculating the current value of a future cash flow or series of cash flows based on a certain interest rate. Annual percentage rate E. The name given to the amount to which a cash flow, or a series of cash flows, will grow over a given period of time when compounded at a given rate of interest. Annuity due F. A 6% return that you could have earned if you had made a particular investment. Perpetuity G. A concept that maintains that the owner of a cash flow will value it differently, depending on when it occurs. Future value H. A series of equal cash flows that occur at the beginning of each of the equally spaced intervals (such as daily, monthly, quarterly, and so on). Amortization schedule I. A cash flow stream that is generated by a share of preferred stock that is expected to pay dividends every quarter indefinitely. Opportunity cost of funds J. A series of equal cash flows that occur at the end of each of the equally spaced intervals (such as daily, monthly, quarterly, and so on). B. Time value of money calculations can be solved using a mathematical equation, a financial calculator, or a spreadsheet. Which of the following equations can be used to solve for the present value of a perpetuity? PMT/r FV/(1 + r)nn PMT x ({1 – [1/(1 + r)nn]}/r) PV x (1 + r)n

A. Finance, or financial management, requires the knowledge and precise use of the language of the field. Match the terms relating to the basic terminology and concepts of the time value of money on the left with the descriptions of the terms on the right. Read each description carefully and type the letter of the description in the Answer column next to the correct term. These are not necessarily complete definitions, but there is only one possible answer for each term. Term Answer Description Discounting A. A schedule or table that reports the amount of principal and the amount of interest that make up each payment made to repay a loan by the end of its regular term. Time value of money B. A loan in which the payments include interest as well as loan principal. Amortized loan C. A value that represents the interest paid by borrowers or earned by lenders, expressed as a percentage of the amount borrowed or invested over a 12-month period. Ordinary annuity D. A process that involves calculating the current value of a future cash flow or series of cash flows based on a certain interest rate. Annual percentage rate E. The name given to the amount to which a cash flow, or a series of cash flows, will grow over a given period of time when compounded at a given rate of interest. Annuity due F. A 6% return that you could have earned if you had made a particular investment. Perpetuity G. A concept that maintains that the owner of a cash flow will value it differently, depending on when it occurs. Future value H. A series of equal cash flows that occur at the beginning of each of the equally spaced intervals (such as daily, monthly, quarterly, and so on). Amortization schedule I. A cash flow stream that is generated by a share of preferred stock that is expected to pay dividends every quarter indefinitely. Opportunity cost of funds J. A series of equal cash flows that occur at the end of each of the equally spaced intervals (such as daily, monthly, quarterly, and so on). B. Time value of money calculations can be solved using a mathematical equation, a financial calculator, or a spreadsheet. Which of the following equations can be used to solve for the present value of a perpetuity? PMT/r FV/(1 + r)nn PMT x ({1 – [1/(1 + r)nn]}/r) PV x (1 + r)n

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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1. Basic concepts

A. Finance, or financial management, requires the knowledge and precise use of the language of the field.

Match the terms relating to the basic terminology and concepts of the time value of money on the left with the descriptions of the terms on the right. Read each description carefully and type the letter of the description in the Answer column next to the correct term. These are not necessarily complete definitions, but there is only one possible answer for each term.

Term		Description
Discounting	A.	A schedule or table that reports the amount of principal and the amount of interest that make up each payment made to repay a loan by the end of its regular term.
Time value of money	B.	A loan in which the payments include interest as well as loan principal.
Amortized loan	C.	A value that represents the interest paid by borrowers or earned by lenders, expressed as a percentage of the amount borrowed or invested over a 12-month period.
Ordinary annuity	D.	A process that involves calculating the current value of a future cash flow or series of cash flows based on a certain interest rate.
Annual percentage rate	E.	The name given to the amount to which a cash flow, or a series of cash flows, will grow over a given period of time when compounded at a given rate of interest.
Annuity due	F.	A 6% return that you could have earned if you had made a particular investment.
Perpetuity	G.	A concept that maintains that the owner of a cash flow will value it differently, depending on when it occurs.
Future value	H.	A series of equal cash flows that occur at the beginning of each of the equally spaced intervals (such as daily, monthly, quarterly, and so on).
Amortization schedule	I.	A cash flow stream that is generated by a share of preferred stock that is expected to pay dividends every quarter indefinitely.
Opportunity cost of funds	J.	A series of equal cash flows that occur at the end of each of the equally spaced intervals (such as daily, monthly, quarterly, and so on).

B. Time value of money calculations can be solved using a mathematical equation, a financial calculator, or a spreadsheet. Which of the following equations can be used to solve for the present value of a perpetuity?

PMT/r

FV/(1 + r)nn

PMT x ({1 – [1/(1 + r)nn]}/r)

PV x (1 + r)n

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