Exam 2 (Ch 5)

Which of the following is true of annuities?

An annuity due is an equal stream of cash flows is paid or received at the beginning of each period.

Why is $1000 worth more today than in a year

Future Value vs Present value Depends on requency of compounding

In comparing an ordinary annuity and an annuity due, which of the following is true?

The future value of an annuity due is always greater than the future value of an otherwise identical ordinary annuity.

Why is a dollar today worth more than a dollar in ten years?

return earned on the dollar

If the present value of a perpetual income stream is increasing, the discount rate must be ________.

decreasing

The annual rate of return is referred to as the ________.

discount rate

The future value of a dollar ________ as the interest rate increases and ________ the further in the future an initial deposit is to be received.

increases; increases

The rate of interest that "truth-in-lending laws" require to be disclosed to consumers of credit card and loan agreements is the ________ interest rate.

nominal

An annuity with an infinite life is called a(n) ________.

perpetuity

All the patterns of cash flows can be found in time value of money calculations EXCEPT?

a time line

The amount of money that would have to be invested today at a given interest rate over a specified period in order to equal a future amount is called ________.

present value