Fin 311
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)×(PV of an ordinary annuity)
To find the present value of an annuity of $100 per year for 10 years at 10% per year using the tables, find a present value factor of 6.1446 and multiply it by ______
100
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 spreadsheet functions 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)
Which of the following is a perpetuity?
A constant stream of cash flows forever
Which of the following is the simplest form of loan?
A pure discount loan
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)
True or false: The annuity due calculation assumes cash flows occur evenly throughout the period.
F
True or false: The annuity present value factor equals one minus the discount rate all divided by the present value factor.
F
True or false: The effective annual rate is the interest rate expressed in terms of the interest payment made each period.
F
True or false: To find the annuity future value factor, you only need the cash flows and the discount rate.
F
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).
F
When calculating annuity present values using a financial calculator, the amount is left blank. (Enter the abbreviation only.)
FV
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
Which of the following is not a way to amortize a loan?
Fixed interest payments only
More frequent compounding leads to:
Higher EARs
You are solving a present value equation using a financial calculator and are given the number of years for compounding. This should be entered as the _____ value on the financial calculator.
N
Which of the following are ways to amortize a loan?
Pay principal and interest every period in a fixed payment. Pay the interest each period plus some fixed amount of the principal.
Which of the following are real-world examples of annuities?
Pensions Leases Mortgages
The formula for the future value of an annuity factor is [(1+r)t -1]/r.
T
True or false: An ordinary annuity consists of a level stream of cash flows for a fixed period of time.
T
True or false: Interest rates can be quoted in various ways
T
Which of the following could not be evaluated as annuities or annuities due?
Tips to a waiter Monthly electric bills
In the Excel setup of a loan amortization problem, which of the following occurs?
To find the principal payment each month, you subtract the dollar interest payment from the fixed payment. The payment is found with = PMT(rate, nper, -pv, fv).
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 ____. Multiple choice question.
at the beginning of each period
The effective annual rate (EAR) takes into account the ______ of interest that occurs within a year.
compounding
Assume interest is compounded monthly. The ______ annual rate will express this rate as though it were compounded annually.
effective
In almost all multiple cash flow calculations, it is implicitly assumed that the cash flows occur at the _____ of each period. Multiple choice question.
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
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. Multiple choice question.
interest rate
When finding the present or future value of an annuity using a spreadsheet, the ______ ______ should be entered as a decimal.
interest rate
An ordinary annuity consists of a(n) ________ stream of cash flows for a fixed period of time.
level
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(an) ______ annuity multiplied by (1+ r).
ordinary
The entire principal of an interest-only loan is the:
original loan amount
C/r is the formula for the present value of a(n) ____. Multiple choice question.
perpetuity
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
the ________ present value can be found using the perpetual cash flow and the discount rate.
perpetuity
The formula for the ______ value interest factor of an annuity is: [1- 1/(1+r)τ]/r.
present
When entering variables in a spreadsheet 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?
present value future value payment
Amortization is the process of paying off loans by regularly reducing the _________.
principal
The original amount of a loan is termed the loan ___________. Multiple choice question.
principal
The general formula for ______ is (1+quoted rate/m)m - 1. Multiple choice question.
the EAR
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 Time
zero or 0
True or false: When using a financial calculator to find the number of payments, the PMT value should be entered as a positive.
F
True or false: With interest-only loans, the principle is never repaid. True false question.
F
True or false: The payment for an annuity can be calculated using the annuity present value, the present value factor, and the interest or the discount rate.
T
True or false: The perpetuity present value can be found using the perpetual cash flow and the discount rate.
T
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.
T
Because of __________ and _________, interest rates are often quoted in many different ways.
tradition; legislation
Which of the following processes can be used to calculate the future value of multiple cash flows?
Calculate the future value of each cash flow first and then sum them Compound the accumulated balance forward one year at a time
rue or false: The annuity present value of an amount C is calculated as c*{1−[1/(1+r)t]r}c*1-1/1+rtr
T
