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Financial Management Exam 2

Terms in this set (17)

An ordinary annuity is best defined by which one of the following?

Increasing payments paid for a definitive period of time.
Equal payments paid at the beginning of regular intervals for a limited time period.
Equal payments paid at the end of regular intervals over a stated time period.
Equal payments that occur at set intervals for an unlimited period of time.
Increasing payments paid forever.
Equal payments paid at the end of regular intervals over a stated time period.
Which one of the following statements correctly defines a time value of money relationship?
Time and future values are inversely related, all else held constant Time and present value are inversely related, all else held constant.
An increase in time increases the future value given a zero rate of interest.
An increase in a positive discount rate increases the present value.
Interest rates and time are positively related, all else held constant.
Time and present value are inversely related, all else held constant.
annuity
finite series of equal payments that occur at regular intervals
Ordinary annuity
first payment occurs at the end of the period
annuity due
first payment occurs at the beginning of the period
perpetuity
infinite series of equal payments
perpetuity formula
PV = C/r
annuity formula PV
C[1-(1/(1+r)^t)/r]
Annuity formula FV
C[(1+r)^t -1/r]
growing perpetuity
a growing stream of cash flows that lasts forever
growing annuity
a growing stream of cash flows with a fixed maturity
Bearer form
A bond that is payable to whomever has physical possession of the bond is said to be in:
Liquidity
Which one of the following risk premiums compensates for the inability to easily resell a bond prior to maturity?
Comparable Real Rate
You are trying to compare the present values of two separate streams of cash flows that have equivalent risks. One stream is expressed in nominal values and the other stream is expressed in real values. You decide to discount the nominal cash flows using a nominal annual rate of 8 percent. What rate should you use to discount the real cash flows?
preferred stock
Which one of the following is a type of equity security that has a fixed dividend and a priority status over other equity securities?
long-term; zero coupon
You expect interest rates to decline in the near future even though the bond market is not indicating any sign of this change. Which one of the following bonds should you purchase now to maximize your gains if the rate decline does occur?
yield to maturity
The bond market requires a return of 9.8 percent on the five-year bonds issued by JW Industries. The 9.8 percent is referred to as which one of the following?
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