Fin ch 5

Define dapper open annuity of $100 per year for 10 years at 10% using the tables, find a present value factor of 6.1446 and multiply it by ____.

$100

which of the following is the formula for the future value of an annuity factor?

(( 1 + r) t -1 / r)

which of the following is the general formula for the EAR when m is the number of times interest is compounded in a year?

(1 + quoted rate / m)^ m -1

the formula for the present value of an annuity due is:

(1 + r) x (PV of an ordinary annuity)

which of the following are real world examples of annuities?

- Mortgages - Pensions - Leases

in the Excel setup of a loan amortization problem, which of the following occurs?

- The payment is found with = PMT (rate,nper, -pv, fv) . - to find the principal payment each month, you subtract the dollar interest payment from the fix payment.

which of the following cannot be evaluated as annuities or annuities due.

- Tips to a waiter - monthly electric bill

Which of the following processes can be used to calculate the future value of multiple cash flows?

- compound the accumulated balance forward one year at a time - calculate the future value of each cash flow first and then sum them

which of the following are ways to amortize a loan?

- pay the interest each period plus some fixed amount of the principal - pay principal and interest every period in a fixed payment

the interest rate changed per period multiplied by the number of periods per year is equal to____ ____ _____.

-Annual -Percentage -Rate

which of the following spreadsheet functions will result in the correct answer for the following annuity problem: you plan to deposit $100 per year for the next 10 years in an account paying 8%. how much will you have in this annuity?

= FV (.08, 10, -100, 0)

Which of the following is a perpetuity?

A constant stream of cash flows forever

The effective annual rate ( EAR) takes into account the ____ of the interest that occurs within a year.

Compounding

one step in calculating EARs is to _____ the quoted rate by the number of times that the interest is compounded.

Divide

one step in calculating an EAR is to ____the quoted rate by the number of times that the interest rate is compounded.

Divide

which of the following is the appropriate spreadsheet function to convert a quoted rate of 12% compounded quarterly to an EAR?

EFFECT (0.12, 4)

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

Effective

In almost all multiple cash flow calculations, it is implicitly assumed that the cash flows occur at the ____ of each.

End

spreadsheet functions used to calculate the present value of multiple cash flows assume, by default, that all cash flows occur at the _____ of the period.

End

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

a perpetuity is a constant stream of cash flows for a(n) ___ period of time.

Infinite

when finding the present or future value of an annuity using a financial calculator, the _____ ______ should be entered as a percentage.

Interest rate

when finding the present or future value of an annuity using a spreadsheet, the _____ _____ should be entered as a decimal.

Interest rate

a simple way to amortize early loan is to have the borrower pay the interest each period plus some fixed amount this approach is common with _____- term business loans.

Medium

the annuity present value Factor equals 1 ____ the present value Factor all divided by the discount rate.

Minus

when using a financial calculator to find the number of payments, the PMT value should be entered as a ____.

Negative

The present value of an annuity due is equal to the present value of a(n) ____Annuity multiplied by (1 + r) .

Ordinary

The _____ for an annuity can be calculated using the annuity present value, the present value factor, and the discount rate.

Payment

C / r is the formula for the present value of a(n) _____.

Perpetuity

amortization is the process of paying off loans by regularly reducing the ____ .

Principal

the original amount of a loan is termed the loan _____ .

Principal

EAR = (1 + ____rate / m)^ m -1

Quoted

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

the formula for the future value of an annuity factor is [ (1 + r)^t -1] / r.

True

true or false: interest rates can be quoted in various ways.

True

the First Cash Flow at the end of week 1 is $100, the second cash flow at the end of month to is $100, and the third cash flow from the end of year 3 is 100. this cash flow pattern is a ______ type of cash flow.

Uneven

which of the following is the simplest form of a loan?

a pure discount loan

the most common way to repay a loan is to pay ____ .

a single fixed payment every period

An annuity with payments beginning immediately rather than at the end of the period is called an _____.

annuity due

an annuity due is a series of payments that are made _____.

at the beginning of each period

true or false: to find the annuity future value Factor, you only need the cash flows and the discount rate.

false

which of the following is not a way to amortize a loan?

fixed interest payments only

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

greater than

if you borrow $15,000 today at 5% annual interest to be repaid in one year as a lump sum, this is termed a ______ .

pure discount loan

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

repaid at some point in the future

When entering variables in a spreadsheet function "sign convention" can be critical to achieving a correct answer. the sign convention says The outflows are negative values; inflows are positive values. for which variable is this a consideration?

- Payment - future value - present value

the cash flows of an annuity due are the same as those of an ordinary annuity except that there is an extra cash flow at the time _____.

0

assume interest is compounded monthly. The ____ annual rate will be expressed this rate as though it were compounded annually.

Effective

when calculating annuity present value using a financial calculator, the ___ amount is left blank.

FV

T/F: If you invest for two periods at an interest rate of r, then your money will grow to (1+r) Per dollar invested.

False

True or false: when using a financial calculator to find the number of payments, the PMT value should be entered as a positive

False

true or false: if the interest rate is greater than zero, the value of an annuity due is always less than an ordinary annuity.

False

true or false: the annuity due calculation as soon as cash flows occur evenly throughout the period.

False

true or false: the annuity present value Factor equals 1 minus the discount rate all divided by the present value Factor.

False

true or false: the effective annual rate is the interest rate Express in terms of Interest payment made each period.

False

true or false: the interest rate change per period On a loan divided by the number of periods per year equals the annual percentage rate.

False

true or false: the payment for an annuity can be calculated by using the annuity present value, the present value Factor, and the interest rate.

False

true or false: using the spreadsheet formula to convert a quoted rate (or an APR) to an effective rate, use the formula NOMINAL (effect_rate, npery)

False

true or false: with interest-only loans, the principal is never repaid.

False

the present value formula for a(n) ____ is PV= C / r, where C is the constant and regularly time to cash flow to Infinity, and r is the interest rate.

Perpetuity

the formula of the ___ value interest factor of an annuity is: [ 1 - 1/ (1 + r)^ t]/r.

Present

true or false: a simple way to amortize a loan is to have the borrower pay the interest each period plus a fixed amount

True

true or false: an ordinary annuity consists of a level stream of cash flows for a fixed period of time.

True

true or false: the annuity present value of an amount C is calculated as C { 1 -[ 1 / (1 + r) t]} /r.

True

true or false: the perpetuity present value can be found using the Perpetual cash flow and discount rate.

True

true or false: to find the future value of multiple cash flows, calculate the future value of each cash flow first and then sum them.

True

true or false: when calculating the present value of an annuity using the financial calculator, you enter the cash flows of the annuity in the PMT key.

True

the entire principal of an interest only loan is the:

original loan amount

compounding during the year can lead to a difference between the ____rate and the effective rate

quoted or stated