Chapter 5 LearnSmart

When finding the present value or future value of an annuity using a spreadsheet (excel), the _______ should be entered as a decimal.

interest rate

What is the appropriate Excel function to convert a quoted rate of 12% compounded quarterly to an EAR?

EFFECT(0.12,4)

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

effective annual rate

If the interest rate is greater than zero, the value of an annuity due is always ______ an ordinary annuity.

greater than

More frequent compounding leads to:

higher EARs

An ordinary annuity consists of a(n) ______ stream of cash flows for a fixed period of time.

level

The entire principal of an interest-only loan is the:

original loan amount

When entering variables in an Excel function (or in a financial calculator) the "sign convention" can be critical to achieving a correct answer. The sign convention says that outflows are negative values; inflows are positive values. For which variables is this a consideration?

payment future value present value

The present value formula for a(n) _____ is PV=C/r, where C is the constant and regularly timed cash flow to infinity, and r is the interest rate.

perpetuity

Amortization is the process of paying off loans by regularly reducing the _______.

principal

With typical interest-only loans, the entire principal is:

repaid at some point in the future

The general formula for _________ is (1+quoted rate/m)^(m) - 1.

the EAR

Because of _______ and ______, interest rates are often quoted in many different ways.

tradition; legislation

You agree to repay $1,200 in 2 weeks for a $1,000 payday loan. What is your EAR assuming that there are 52 weeks in a year?

11,347.55%

If the quoted interest rate is 2% per month (12 months in a year), what is the APR?

24%

What excel function will calculate the $614.46 present value of an ordinary annuity of $100 per year for 10 years at 10% per year?

=PV(0.10,10,-100,0,0)

$100 at the end of each year forever at 10% per year is worth how much today?

$1,000

What is the Future Value of $100 deposited each year for 2 years beginning next year, then $200 deposited for the next two years if you can earn 6% per year?

$643.46

Suppose you paid $1,200 loan off by paying principal each year plus 10% yearly interest. How much is the SECOND interest payment?

$80

Which of the following are real-world examples of annuities? - Mortgages - Common Stock dividends - Leases - Preferred stock dividends - Pensions

- Mortgages - Leases - Preferred stock dividends - Pensions