Finance Exam 2
What is a series of equal end-of-period cash flows?
annuity
The future value of _______ is always greater than the future value of an otherwise identical ordinary
annuity due
Interest earned on both the initial principal and the interest reinvested from prior periods is called ___________ interest
compound
__________ interest entails receiving interest payments on previously earned interest
compound
Process of accumulating interest on an investment over time to earn more interest is called:
compounding
_______ interest rate will increase present value of an investment
decrease
The ____________ compensates the investor for the additional risk that the loan will not be repaid in full
default premium
Process of finding the present value of some future amount is often called:
discounting
The interest rate expressed as if it were compounded once per year is called the _______ rate
effective annual
The future value of a dollar ______ as the interest rate increases and _______ as the time to maturity increases
increases, increases
The phrase "price to rent money" is sometimes used to refer to ________
interest rates
What exists when short-term rates exceed long-term rates
inverted yield curve
Perpetuity differs from an annuity because: perpetuity payments __________
never cease
A never-ending stream of equal periodic, end-of-the-period cash flows is called
perpetuity
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
present value
Interest earned only on the original principal amount invested is called __________ interest
simple
What shows the relationship between interest rates and time to maturity
yield curves