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Chap 8 Study Quiz

Terms in this set (40)

The ______ _______ ___ ______ means that money you hold in your hand today is worth more than the same amount of money you expect to receive in the future.
TVM
______ interest rates indicate that money has a time value.
Positive
The cost paid by the borrower to the lender for reducing consumption, known as an ______ ______, is the real rate of interest.
opportunity cost
The real rate of interest reflects compensation for the pure TVM, it does NOT include interest charged for expected ______ or other risk factors.
inflation
The ______ rate of return on an investment reflects the pure TVM, an adjustment for expected inflation, and any other risk premiums present.
required
The pure time value of money uses the ______ rate of interest.
real
How much we would pay today to obtain a specific amount in the future is called the ____ value.
present
______ _______ is the value of a starting amount at a future point in time, given the rate of growth per period and the number of periods until that future time.
Future value
Financial managers adjust for the TVM by calculating the _____ and _____ values
present future
TVM problems can be computed in four ways, using algebraic formulas, financial tables, financial calculators, and computer ______.
Excel
Computing the PV will ______ cash flows, while computing FV will compound cash flows.
discount
Often, the interest earned on investments is ______ interest, which includes interest earned on interest and on the original principal.
compound
If the interest rate increases, the future value will ___________.
increase
If the number of periods increases, the future value will __________.
increase
If the interest/discount rate or the number of periods increase, present value will ________.
decrease
Discounting is the ________of compounding.
inverse
In present value analysis, the interest rate used in the discounting process is known as the ______ rate.
discount
The discount rate reflects the lost ______ to spend or invest now and the various risks assumed because we must wait for the funds.
opportunity
Compounding causes the value of a beginning amount to ______ at an increasing rate.
increase
Discounting causes the PV of a future amount to ______ at a decreasing rate.
decrease
Future cash outflows are _____ burdensome than present cash outflows of the same amount
less
A series of equal cash flows spaced evenly over time is called ______________.
annuity
Consumers can purchase annuities from insurance companies as a means of providing ______ income.
retirement
Many car payment schedules, retirement plans, and bond payments are types of annuities because they all have ______ payments made a regular time intervals.
equal
Annuities in which cash flows occur at the end of each of the specified time periods are known as ______ annuities.
ordinary
Annuities in which cash flows occur at the beginning of each specified period are called ______ ______.
annuities due
Annuities that continue forever are called ______.
perpetuities
______ stock is an example of a perpetuity.
Preferred
The future value of perpetuities ______ be calculated.
cannot
Preferred stock is valued the same as a ________.
perpetuity
When an investment has payments that vary in amount, the investment is said to have ______ cash flows.
uneven
The PV of an uneven cash flow can be solved with financial calculators and in Excel using the ______ key or function.
NPV
Interest rates can be calculated in Excel using the ______ formula.
RATE
A loan that is paid off in equal amounts that include principal as well as interest is called an _________ loan.
amortized
Amortized loans are set up as ______ annuities.
ordinary
The PV of the amortized loan annuity is the ______ amount, because you get the money from the bank at the beginning.
loan
The smallest compounding period is used when we do ______compounding?
continuous
The formulas for computing compounding are typically set up using annual compounding, for more frequently compounding, the formulas will need to be ______.
adjusted
Adjustments for more frequent compounding must be made for payments (if annuity), the interest rate, and the number of _____ in the investment.
periods
The more frequently interest is compounded, the ______ the future value.
greater
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