Finance: Chapter 4
"When given the annual withdrawals desired during the retirement period, the FVA tells us the amount we should have accumulated by the time we begin the retirement period.
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To find the loan amount for a fixed-rate fully-amortized loan, solve for "PMT" in the PVA formula.
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We can determine which "PMT" we're being asked to solve for by noting what the problem provides in terms of r and n.
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Annuities are unequal cash flows that go on for a finite period of time.
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Once you determine that you are solving for the "PMT" variable, the appropriate formula to use is determined by the values of "r" and "n".
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"PMT" in the PVA formula tells us the periodic mortgage payments for a fixed-rate fully amortized loan.
True
The principal part of a fixed mortgage loan payment can be found by multiplying the periodic interest rate by the ending balance for a given period.
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The simple FV formula is to be used to solve for the PV of an uneven stream of cash flows.
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To find the amount needed at the beginning of your retirement period that would enable you to make desired annual withdrawals from your account, you would solve for "PMT" in the FVA formula.
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To find the "PMT" in the FVA or PVA formulas, we calculate the value in the bracket and then multiply it by the FVA or PVA
False
When solving for the future value of a stream of unequal cash flows, it is important to add together the values BEFORE applying the future value formula to determine their future value
False
With the PVA and PVP formulas, if the first "PMT" you use is for the end of period 8, then the formula will give you the value as of the end of period 9.
False
For fixed-rate fully amortized mortgage loans, more of the fixed payment goes towards principal as we approach the end of the loan term.
True
Given the amount needed at the beginning of the retirement period, the annual deposits needed during the working period can be found by solving for "PMT" in the FVA formula.
True
Perpetuities are like annuities that go on forever.
True
The variable "n" in the annuity formulas represents the numbe of "PMT"s.
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We can find the amount needed to pay off a fixed-rate fully amortized mortgage loan at any point in time by solving for the PV of the remaining payments.
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We've discussed 3 different multiple cash flow patterns.
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When solving for the FV of an uneven stream of cash flows, the appropriate exponents go down as you go from left to right on the time line of those cash flows.
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