Finance test #2

With an interest-only loan the principal is..

Repaid in one lump sum at the end of the loan period

A bond that has only one payment, which occurs at maturity, defines which one of these types of bonds?

Zero coupon

A bond's principal is repaid on the ___ date

maturity

The items in an indenture that limit actions of the issuer in order to protect a bondholder's interests are referred to as the

protective covenants

If a borrower receives money today and must repay the loan in a single lump sum on a future date, the loan is called an ___ loan

pure discount

A bond that can be paid off early at the issuer's discretion is referred to as being which type of bond?

Callable

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

Compound interest

Which one of the following actions will increase the present value of an amount to be received sometime in the future

Decrease in the interest rate

The process of determining the present value of future cash flows in order to know their value today is referred to as

Discounted cash flow valuation

An ordinary annuity is best defined as

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

Olivares, Incorporated, bonds mature in 17 years and have a coupon rate of 5.4 percent. If the market rate of interest increases, then the

Market price of the bond will decrease

As the beneficiary of a life insurance policy, you have two options for receiving the insurance proceeds. You can receive a lump sum of $200,000 today or receive payments of $1,400 a month for 20 years. If you can earn 6% on your money, which option should you take and why?

You should accept the $200,000 because the payments are only worth $195,413 to you today