Finance test #2
With an interest-only loan the principal is..
Repaid in one lump sum at the end of the loan period
A bond that has only one payment, which occurs at maturity, defines which one of these types of bonds?
Zero coupon
A bond's principal is repaid on the ___ date
maturity
The items in an indenture that limit actions of the issuer in order to protect a bondholder's interests are referred to as the
protective covenants
If a borrower receives money today and must repay the loan in a single lump sum on a future date, the loan is called an ___ loan
pure discount
A bond that can be paid off early at the issuer's discretion is referred to as being which type of bond?
Callable
The interest earned on both the initial principal and the interest reinvested from prior periods is called
Compound interest
Which one of the following actions will increase the present value of an amount to be received sometime in the future
Decrease in the interest rate
The process of determining the present value of future cash flows in order to know their value today is referred to as
Discounted cash flow valuation
An ordinary annuity is best defined as
Equal payments paid at the end of the regular intervals over a stated time period
Olivares, Incorporated, bonds mature in 17 years and have a coupon rate of 5.4 percent. If the market rate of interest increases, then the
Market price of the bond will decrease
As the beneficiary of a life insurance policy, you have two options for receiving the insurance proceeds. You can receive a lump sum of $200,000 today or receive payments of $1,400 a month for 20 years. If you can earn 6% on your money, which option should you take and why?
You should accept the $200,000 because the payments are only worth $195,413 to you today