Chapter 5 principles of finance Uark exam 2 practice questions

________ is the amount earned on a deposit that has become the part of the principal at the end of a specified time period. A) Discount interest B) Compound interest C) Primary interest D) Future value

B) Compound interest

If the present value of a perpetual income stream is increasing, the discount rate must be ________. A) increasing B) decreasing C) changing unpredictably D) increasing proportionally

B) decreasing

The rate of interest agreed upon contractually charged by a lender or promised by a borrower is the ________ interest rate. A) effective B) nominal C) discounted D) continuous

B) nominal

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 ________. A) future value B) present value C) future value of an annuity D) compounded value

B) present value

Which of the following is true of annuities? A) An ordinary annuity is an equal payment paid or received at the beginning of each period. B) An annuity due is a payment paid or received at the beginning of each period that increases by an equal amount each period. C) An annuity due is an equal stream of cash flows is paid or received at the beginning of each period. D) An ordinary annuity is an equal payment paid or received at the end of each period that increases by an equal amount each period.

C) An annuity due is an equal stream of cash flows is paid or received at the beginning of each period.

The future value of a dollar ________ as the interest rate increases and ________ the further in the future an initial deposit is to be received. A) decreases; decreases B) decreases; increases C) increases; increases D) increases; decreases

C) increases; increases

The time value concept/calculation used in amortizing a loan is ________. A) future value of a dollar B) future value of an annuity C) present value of a dollar D) present value of an annuity

D) present value of an annuity

In comparing an ordinary annuity and an annuity due, which of the following is true? A) The future value of an annuity due is always greater than the future value of an otherwise identical ordinary annuity. B) The future value of an ordinary annuity is always greater than the future value of an otherwise identical annuity due. C) The future value of an annuity due is always less than the future value of an otherwise identical ordinary annuity, since one less payment is received with an annuity due. D) All things being equal, one would prefer to receive an ordinary annuity compared to an annuity due.

A) The future value of an annuity due is always greater than the future value of an otherwise identical ordinary annuity.

The annual rate of return is referred to as the ________. A) discount rate B) marginal rate C) risk-free rate D) marginal cost

A) discount rate

The rate of interest actually paid or earned, also called the annual percentage rate (APR), is the ________ interest rate. A) effective B) nominal C) discounted D) continuous

A) effective

An annuity with an infinite life is called a(n) ________. A) perpetuity B) primia C) option D) deep discount

A) perpetuity

ordinary annuity=end annuity due= ______

begin