fin 3000 exam 2

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growing perpetuity

a growing stream of cash flows that continues forever

discounted cash flow

calculating the PV of a future cash flow to determine its value

_____________ is the popular Latin phrase very commonly used in economics and finance which translates to "other things equal"

ceteris paribus

ceteris paribus, as the time period increases, the present value

decreases

according to the rule of 72, you can do which one of the following

double your money in 5 years at 14.4 percent interest

________ is the interest rate expressed as if it were compounded once per year. it is the actual rate paid (or received) after accounting for compounding that occurs during the year

effective annual rate

simple interest

interest earned only on the original principal amount invested

mortgage loan

is secured by the collateral of some specified real estate property

future value

the amount an investment is worth after one or more periods

pure discount loan

the borrower receives money today and repays a single lump sum on a future date

present value

the current value of cash flows discounted at the appropriate discount rate

principal balance

the original loan amount

annuity due

if the first payment occurs at the beginning of the period. the first cash flow starts today. common examples are apartment rentals or some loan agreements

ordinary annuity

if the first payment occurs at the end of the period. the first cash flow starts one year from today

time value of money

refers to the notion that money is worth different values across time

this is true about interest rates

the effective annual rate equals the annual percentage rate when interest is compounded annually

Annual Percentage Rate (APR)

the interest rate charged per period multiplied by the number of periods per year. this is the annual rate that is quoted by law

growing annuity

a growing stream of cash flows with a fixed maturity

which one of the following accurately defines a growing annuity

a growing stream of cash flows with a fixed maturity

interest only loan

a loan that calls for periodic interest payments and a lump sum principal payment

amortized loan

a loan wherein each payment is equal in amount and includes interest and principal

annuity

a series of equal cash flows for a finite period of time

defines an annuity due

a series of equal cash flows for a finite period of time with the first payment occurring at the beginning of the period

perpetuity

an annuity in which the cash flows continue FOREVER.

which one of the following accurately defines a perpetuity

an annuity in which the cash flows continue forever

the interest rate that is most commonly quoted by a lender is referred to as the

annual percentage rate

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

compound interest

Effective Annual Rate (EAR)

the interest rate expressed as if it were compounded once per year. it is the actual rate paid (or received) after accounting for compounding that occurs during that year. this increases as the number of compounds increase

stated interest rate

the interest rate expressed in terms of the interest payment made each period, it is also known as the quoted interest rate. this is the rate quoted by the lender

amortizing

the process of providing for a loan to be paid off by making regular principal reductions

discount rate

the rate used to calculate the PV of future cash flows

discount

to discount a value means to calculate the PV of some future cash flow


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