Chapter 4

Which one of the following constitutes an infrequent annuity?

$100 once every 2 years. In an infrequent annuity, the payments occur less than once a year

If you earn 8 percent a year compounded annually for 7 years on a $1,000 present value, your future value will be ____.

1713.82

What are the implications of the time value of money concept?

A dollar tomorrow is worth less than a dollar today A dollar today is worth more than a dollar tomorrow.

True/False: Receiving $10 today has the same value as receiving $1 today and $9 one year from now?

False

A finite number of growing cash flows describes which of the following?

Growing annuity

Which of the following is the formula for the present value of a growing perpetuity?

PV= C/(r-g)

The idea behind ______ is that interest is earned on interest.

compounding

To contrast the annual percentage rate (APR) with the effective annual rate the _____ must be known.

compounding interval

To contrast the annual percentage rate (APR) with the effective annual rate the _____ must be known. Multiple choice question.

compounding interval

Interest earned only on your original investment is called ____, whereas interest earned on interest is called _____.

simple interest, compound interest

Present value represents what an amount of money promised or expected in the future is worth ____

today

Which of the following represents an infinite and constant stream of cash flows?

perpetuity

The value of a future cash flow stated in today's dollars is referred to as the _____.

present value

The interest rate (r) used in the general compounding formula is the ______ interest rate.

quoted

One of the most basic principles of finance is that rational individuals prefer to receive a dollar ____ than a dollar ______.

today; tomorrow

The first cash flow at the end of week 1 is $100, the second cash flow at the end of month 2 is $100, and the third cash flow at the end of year 3 is $100. This cash flow pattern is a(n) ______ type of cash flow.

uneven

A traditional (non-growing) annuity consists of a(n) ________ stream of cash flows for a fixed period of time.

Level

If you invest $1,000 and your NPV is $200, then the present value of your future cash flows is ______.

NPV = -Cost+PV $1200

An annuity due is a series of payments that are made ____.

at the beginning of each period

The total value of an investment earning interest over one or more periods is known as the ______.

future value

You invest $100 today. With positive interest rates, the concept of future value implies that the future value of your $100 will be ____ $100. Multiple choice question.

greater than

A stream of cash flows that grows at a constant rate for a finite period is called a(n) _____.

growing annuity

For a positive annual percentage rate (APR) and multiple (more than one) compounding periods per year, the EAR is always ______ the APR.

larger than

If reinvestment of interest or dividends does not occur, then the future value of an investment will be _____ and the realized yield will be ____ than if reinvestment had occurred.

lower; lower