Fin 3123 Chapter 6 Quiz

Which one of the following statements related to annuities and perpetuities is correct?

A perpetuity composed of $100 monthly payments is worth more than an annuity of $100 monthly payments; given equal discount rates.

The interest rate that is most commonly quoted by a lender is referred to as which one of the following?

Annual percentage rate.

Your credit card charges you 1.5 percent interest per month. This rate when multiplied by 12 is called the:

Annual percentage rate.

Which one of the following terms is defined as a loan wherein the regular payments, including both interest and principal amounts, are insufficient to retire the entire loan amount, which then must be repaid in one lump sum?

Balloon loan.

An ordinary annuity is best defined by which one of the following?

Equal payments paid at the end of regular intervals over a stated time period.

An interest rate on a loan that is compounded monthly but expressed as an annual rate would be an example of which one of the following rates?

Effective annual rate.

A loan where the borrower receives money today and repays a single lump sum on a future date is called a(n) _____ loan.

Pure discount.

Which one of these statements related to growing annuities and perpetuities is correct?

The present value of a growing perpetuity will decrease if the discount rate is increased.

Which one of the following statements correctly defines a time value of money relationship?

Time and present value are inversely related, all else held constant.

Which one of the following accurately defines a perpetuity?

Unending equal payments paid at equal time intervals.