Finance Exam 2

What is a series of equal end-of-period cash flows?

annuity

The future value of _______ is always greater than the future value of an otherwise identical ordinary

annuity due

Interest earned on both the initial principal and the interest reinvested from prior periods is called ___________ interest

compound

__________ interest entails receiving interest payments on previously earned interest

compound

Process of accumulating interest on an investment over time to earn more interest is called:

compounding

_______ interest rate will increase present value of an investment

decrease

The ____________ compensates the investor for the additional risk that the loan will not be repaid in full

default premium

Process of finding the present value of some future amount is often called:

discounting

The interest rate expressed as if it were compounded once per year is called the _______ rate

effective annual

The future value of a dollar ______ as the interest rate increases and _______ as the time to maturity increases

increases, increases

The phrase "price to rent money" is sometimes used to refer to ________

interest rates

What exists when short-term rates exceed long-term rates

inverted yield curve

Perpetuity differs from an annuity because: perpetuity payments __________

never cease

A never-ending stream of equal periodic, end-of-the-period cash flows is called

perpetuity

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

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

simple

What shows the relationship between interest rates and time to maturity

yield curves