Finance Exam 2 smartbook

You invest $500 at 10 percent interest. At the end of 2 years with simple interest you will have ____ and with compound interest you will have __

$600;$605

Which formula will you enter into a spreadsheet cell to determine how long it will take $40 to grow to $240 at an interest rate of 6.53% compounded annually?

=NPER(0.0653,0,−40,240)

Which of the following is a perpetuity?

A constant stream of cash flows forever

EAR

Choice The interest rate stated as though it were compounded once per year.

Which of the following investments would result in a higher future value?Investment A - 12% APR for 10 yearsInvestment B - 12% APR for 12 years

Investment B

APR

The interest rate per period multiplied by the number of periods in the year.

Why is a dollar received today worth more than a dollar received in the future?

Today's dollar can be reinvested, yielding a greater amount in the future.

is found by taking the future value factor and subtracting one, then dividing this number by the interest rate.

annuity

Future value is the ______ value of an investment at some time in the future. Multiple choice question. cash interest indirect relational

cash

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

compounding

The process of leaving your money and any accumulated interest in an investment for more than one period, thereby reinvesting the interest, is called

compounding

________ value is the cash value of an investment at some time in the ________

future:future

The greater the number of time periods, the (smaller/greater) the impact of compounding.

greater

Given the same APR, more frequent compounding results in _____.

higher EARs

Which of the following are real-world examples of annuities? Multiple select question. a.) pensions b.) mortgages c.) common stock dividends

mortgages and pensions

The basic present value equation underlies many of the _____.

most important ideas in corporate finance

The loan balance on ___________ amortization loans declines so slowly because the payments are mostly interest.

partial

If you want to know how much you need to invest today at 12 percent compounded annually in order to have $4,000 in five years, you will need to find a(n) _______ value. present idealistic future past

present

The original loan amount is called the _____.

principal

Which of the following is the simplest form of loan?

pure discount

Suppose present value is $100, future value is $1,000, and N is 10 years. Which formula below is used to find the (decimal) interest rate?

r = (1000/100)(1/10) - 1

With interest-only loans that are not perpetuities, the entire principal is _____.

repaid at some point in the future

The discount rate is also called the rate of

return

Interest earned only on the original principal amount invested is called _______ interest.

simple

True or false: Given the same rate of interest, more money can be earned with compound interest than with simple interest.

true