bus 370 finance - ch 6
if your investment pays the same amount at the end of each year for a period of 6 years, the cash flow stream is called: a) an ordinary annuity b) an annuity due c) a perpetuity d) a growing perpetuity
a) an ordinary annuity
a preferred stock would be an ideal example of: a) an ordinary annuity b) a perpetuity c) an annuity due d) a growing annuity
b) a perpetuity
if your investment pays the same amount at the beginning of each year for a period of 10 years, the cash flow is called: a) perpetuity b) an annuity due c) an ordinary annuity d) a growing perpetuity
b) an annuity due
which of the following is true about effective annual rate (ear)? a) the EAR is the annualized interest rate using simple interest. It ignores the interest earned on interest associated with compounding periods of less than one year b) the effective annual interest rate (EAR) is defined as the annual growth rates that do not take compounding into account c) the EAR is the interest rate actually paid (or earned) after accounting for compounding d) the EAR is the simple interest charged per period multiplied by the number of periods per year.
c) the EAR is the interest rate actually paid (or earned) after accounting for compounding
the future value of multiple cash flows is: a) higher or lower than the cash flows depending on the interest rate b) less than the sum of the cash flows c) equal to the sum of all the cash flows d) greater than the sum of the cash flows
d) greater than the sum of the cash flows
which of the following is true of amortization? a) the computation of loan amortization is wholly based on the computation of simple interest b) the amortization schedule represents only the interest portion of the loan c) amortization solely refers to the total value to be paid by the borrower at the end of maturity d) the amortization schedule provides the data of equated monthly payments for which the classification of principal and interest along with unpaid principal balance is provided
d) the amortization schedule provides the data of equated monthly payments for which the classification of principal and interest along with unpaid principal balance is provided
t/f: in ordinary annuities, cash flows occur at the beginning of each period
false
t/f: jacob oram pay the same amount every month as insurance premium for a term life policy for a period of 5 years, the stream of cash flows is called perpetuity.
false
t/f: the correct way to annualize an interest rate is to compute the annual percentage rate (apr)
false
t/f: the present value of an annuity due is less than the present value of an ordinary annuity
false
t/f: the present value of multiple cash flows is greater than the sum of those cash flows
false
t/f: the quoted interest rate is by definition a simple annual interest rate, such as the effective annual interest rate (ear)
false
william deposited $25,000 today that would earn an interest rate of 3% for a period of 2 years. the amount of $25,000 represents the: a) future value of an annuity b) future value c) present value d) present value of an annuity
present value
t/f: allen bell pay the same amount every month on a car loan for a period of 3 years, the stream of cash flows is called annuity.
true
t/f: cash flows streams that increase at a constant rate over time are called growing annuities or growing perpetuities
true
t/f: in an annuity due, cash flows occur at the beginning of each period
true
t/f: in computing the present and future values of multiple cash flows, each cash flow is discounted or compounded at a same rate.
true
t/f: natalie greenburg opened a pizza place last year. she expects to increase her revenue from last year by 7% every year for the next 10 years. this is an example of growing annuity
true
t/f: the effective annual rate (ear) is defined as the annual growth rate that takes compounding into account
true
t/f: the future value of an annuity due is greater than the future value of an ordinary annuity
true
t/f: the present value of a perpetuity is the promised constant cash payment divided by the interest rate (i)
true
t/f: the present value of growing perpetuity is computed as the cash flow occurring at the end of the first period divided by the difference between interest or disount rate and growth rate
true
