Financial Management Ch 4 quiz
A series of equal periodic finite cash flows that occur at the beginning of the period are known as a/an ________. A. annuity due Your answer is correct.B. amortization C. ordinary annuity D. perpetuity
A
An annuity is a series of A. equal cash payments at regular intervals across time. .B. variable cash payments at regular intervals across time. C. equal cash payments at different intervals across time. D. variable cash payments at different intervals across time.
A
The main variables of the TVM equation are A. present value, future value, time, interest rate, and payment. B. present value, future value, perpetuity, interest rate, and principal. C. present value, future value, time, annuity, and interest rate. D. present value, future value, perpetuity, interest rate, and payment.
A
What type of loan requires both principal and interest payments as you go by making equal payments each period? A. Amortized loan B. Interestminusonly loan C. Discount loan D. Compound loan
A
What type of loan makes interest payments throughout the life of the loan and then pays the principal and final interest payment at the maturity date? A. Amortized loan B. Interest-only loan C. Discount loan D. Compound loan
B
A/An ________ is a series of equal end-of-the-period cash flows. A. annuity due B. ordinary annuity C. perpetuity due D. None of the above
B
When you pay off the principal and all of the interest at one time at the maturity date of the loan, we call this type of loan a/an ________. A. amortized loan B. interestminusonly loan C. discount loan D. compound loan
C
Which of the following is NOT an example of annuity cash flows? A. The university tuition bill you pay every month that is always the same B. The $3.50 you pay every morning for a bagel and coffee as you run to your first morning class C. The grocery bill that changes every week .D. All of the examples above are annuity cash flows.
C
A never-ending stream of equal periodic, end-of-the-period cash flows is called a/an ________. A. annuity due B. amortization C. annuity D. perpetuity
D
Amortization tables are common and can be used for all but which of the following? Mortgage loans B. Consumer product loans C. Car loans D. Amortization tables may be used for all of the above.
D
Which of the following is NOT a form of perpetuity? A. A philanthropic endowment fund that pays the same charitable amount every year forever B. Preferred stock that pays the same dividend forever C. A British consol bond D. All are examples of perpetuities.
D
Which of the following is NOT an example of annuity cash flows? A. The $50 of gasoline you put into your car every two weeks on pay day B. Regular equal monthly rent payments C. Equal annual deposits into a retirement account D. All of the examples above are annuity cash flows.
D
Given a positive interest rate and a positive cash flow, an ordinary annuity always has a greater present value than an annuity due of the same size and number of cash flows.
F
It ALWAYS makes more sense financially to take the lump sum payout from winning a lottery than taking the annual cash flows.
F
Once you begin making payments on an amortization schedule for a loan such as a mortgage or car loan, most contracts clearly state that you may NOT pay off the loan early.
F
Ordinary annuity payments occur at the beginning of the period, whereas annuity due payments occur at the end of the period.
F
The formula for the Present Value Interest Factor of an Annuity (PVIFA) is StartFraction left parenthesis 1 plus r right parenthesis Superscript n Baseline minus 1 Over r EndFraction .
F
The future value of a combination of positive and negative cash flows cannot be determined.
F
When solving for present value, we use the term compounding of cash flows rather than the term discounting of cash flows.
F
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.
F
Home mortgage loans are commonly paid off by making equal monthly payments consisting of both interest and principal. This is an example of an amortized loan.
T
If we discount the annual payments from winning the lottery at 10%, the corresponding present value is greater than if we discount the annual payments at 12%.
T
Solving for an unknown interest rate for annuity cash flows is an iterative (or trial-and-error) process.T
T
When solving for future value, we use the term compounding of cash flows rather than the term discounting of cash flows.
T
he formula for the Future Value Interest Factor of an Annuity (FVIFA) is StartFraction left parenthesis 1 plus r right parenthesis Superscript n Baseline minus 1 Over r EndFraction .
T
