Finance Ch.5 and Ch.6

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APR

Quoted Rate

Balloon loan

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?

Effective Annual Rate (EAR)

A monthly interest rate expressed as an annual rate would be an example of which one of the following rates?

the lower the present value

Given the interest rate, the longer the time period...

the smaller the present value

Given the time period, the higher the interest rate...

ordinary annuity

Equal payments paid at regular intervals over a stated time period

The principle is repaid in a lump sum at the end of the loan period

How is the principle amount of an interest-only loan repaid?

Simple Interest

Only receiving interest on initial investment is what kind of interest?

Annuity Due

Payments occur at the beginning of each period.

Pure Discount loan

The entire repayment of which loan is computed simply by computing a single future value?

Stated interest rate

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

Discounted cash flow valuation

The process of determining the present value of the future cash flows in order to know the worth today is called which of the following?

perpetuity

Unending equal payments paid at equal time intervals.

Annual percentage rate (APR)

What is the interest rate charged per period multiplied by the number of periods per year called?

The factors are reciprocals of each other

What is the relationship between present value and future value interest factors?

Interest-only loan

What term is used to describe a loan that calls for periodic interest payments and a lump sum principle payment?

Compounding

When calculating future value, the process is called

Discounting

When calculating present value, the process is called

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

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

Consol

Which term is used to identify a British perpetuity?


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